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29 Mar 2019

Shared ownership mortgage rates getting cheaper

Smaller lenders offering the best mortgage rates for shared ownership buyers

Lenders are cutting the cost of shared ownership mortgages, with new fixed and variable 95% deals offering rates below 3%.

Here, we reveal the best shared ownership mortgage rates available right now and weigh up the pros and cons of buying through the government scheme.

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Smaller lenders cutting shared ownership mortgage rates

Shared ownership - a government scheme which lets you buy a share of 25-75% of a property and pay rent on the rest - is a popular option with first-time buyers struggling to get on the ladder through the normal routes.

In the last week, smaller lenders have been cutting the cost of their shared ownership mortgages.

First of all, Loughborough Building Society made its 95% range cheaper, slicing the rate of its two-year discount mortgage to a market-leading 2.69%.

Next, Newbury followed suit with rate cuts on three- and five-year fixed-rate deals.

Finally, Hanley Economic launched a fee-free two-year discount shared ownership mortgage at a rate of 2.89%.

Which lenders offer shared ownership mortgages?

From this, you might think shared ownership deals are only available from smaller building societies, but this isn't the case.

Some providers offer specific deals for people using shared ownership schemes, while others open up some of their standard residential products.

Right now, 27 lenders offer mortgages for buyers using shared ownership schemes, with 19 offering 95% LTV mortgages to buyers with a 5% deposit.

You can use the interactive table below to find out which lenders offer shared ownership mortgages.

Cheapest shared ownership mortgage rates

As with standard residential loans, shared ownership mortgages are primarily offered in three different categories:

  • Fixed-rate- where the amount you'll pay stays the same for a set amount of time (usually two, three or five years)
  • Discount- where the lender offers a reduction on its standard variable rate (SVR) for a set period of time (usually two or three years)
  • Tracker- where your rate is determined by the Bank of England base rate (currently 0.75%) plus a particular margin (eg 3%) for a set period of time (usually two years).

The tables below show the lowest initial rates available to first-time buyers with a 5% deposit. Links take you to further details of the deals on Which? Money Compare, the Which? comparison site.

Best fixed-rate shared ownership mortgages (95% LTV)

Type of mortgageLenderInitial rateRevert rateAPRCFees

Best variable-rate shared ownership mortgages (95% LTV)

Type of mortgageLenderInitial rateRevert rateAPRCFees
Two-year discountLoughborough2.69% (SVR minus 2.65%)5.34%4.9%None
Three-year discountMelton Mowbray2.79% (SVR minus 2.2%)4.99%4.6%None

Source: Moneyfacts, 28 March. We've only included deals that are available throughout the UK.

Shared ownership: the basics

Shared ownership schemes are a popular way for first-time buyersto get on to the property ladder with a 5% deposit.

The schemes are operated by housing associations, which allow you to buy a share of a property (theoretically as little as 25%, but often much more) and pay rent on the remainder. Buyers can then 'staircase' to full ownership by purchasing further shares at a later date.

Shared ownership properties are leasehold, so you'll also need to pay a service charge for maintenance of common areas.

To use shared ownership in England, you'll need to have a household income of less than £80,000 if you're buying outside London, or £90,000 in London.

Shared ownership schemes also exist elsewhere in the UK, with different eligibility criteria in Wales,Scotlandand Northern Ireland.

Shared ownership mortgages: what you need to know

If you're buying a shared ownership home, you'll first need to pass checks by the housing association to ensure you'll be able to afford the rent portion of your monthly repayments.

Once that's done, you can apply for a mortgage in the same way as if you were buying a home on the regular market.

The big difference with shared ownership is that lenders will take into account the rent you'll be paying on the portion you don't own and the monthly service charge when assessing how much you can afford.

If the overall monthly repayment is more than 45% of your income, you might struggle to pass these checks.

Monthly costs can spiral

Shared ownership costs might seem low at first glance but can spiral significantly.

Let's look at an example of a property currently available on the Share to Buy website.

A two-bedroom apartment in Walthamstow, London is priced at £500,000 - with a minimum share of 25% (£125,000).

With a 5% deposit, you'll need to put down £6,250 (5% of the £125,000). You'll then need to get a mortgage for the remaining £118,750.

While that might sound affordable, Share to Buy estimates your overall monthly cost will be a sizable £1,641 - comprising a mortgage of £626, a service charge of £156, and rent (for the remaining 75% of the property) of £859.

Alternatives to shared ownership

If you're looking to buy your first home, it's important to assess all of your options before rushing in.

For some buyers in expensive areas, shared ownership can make sense, but others may be better off taking a different route. Two popular alternatives are:

  • 95% mortgage - rates on mortgages for buyers with a 5% deposit have fallen significantly, so now could be a good time to apply for a 95% deal. You'll have access to the whole property market (rather than just new-build), so you'll have much more choice. Check out our full guide on 95% mortgages to find out more.
  • Help to Buy - the Help to Buy equity loans scheme, in which the government lends money to buyers of new-build homes, is very popular - but it has faced criticism for inflating house prices, and questions remain about the ease of remortgaging and settling the loan before interest kicks in. Learn more in our full Help to Buy equity loans guide.