Shared ownership, also known as part-buy, part-rent, is a popular way in the UK to get on the property ladder. It’s designed for those who cannot afford to buy a home outright. Instead of purchasing 100% of a property, you buy a share (e.g., 25% to 75%) and rent the rest from a housing association.
One of the most common questions surrounding shared ownership is about deposits. In this guide, we will cover everything you need to know along with some examples to help you get a better understanding.
Guinness Homes is proud to provide award-winning Shared Ownership and private sale homes in areas you want to live.
What is a Shared Ownership Deposit?
A deposit is required by the mortgage lender when buying a home. For shared ownership, the deposit is based on the share of the property you are buying—not the full market value of the home. This is good news for buyers because it means smaller deposits compared to standard purchases.
For example:
- If you want to buy a 25% share in a property valued at £200,000, your share is worth £50,000.
- If your deposit requirement is 5%, you only need to save £2,500 (5% of £50,000).
This makes shared ownership a more affordable option for many people.
How Much of a Deposit Will You Need?
The percentage deposit required depends on your lender and personal circumstances. Most lenders require a deposit between 5% and 10% (in some cases this could be more) of the share you are buying.
Here’s a quick look at how much you’d need with a 5% or 10% deposit:
Property worth £150,000:
- For a 25% share (£37,500), a 5% deposit is £1,875, and a 10% deposit is £3,750.
- For a 50% share (£75,000), a 5% deposit is £3,750, and a 10% deposit is £7,500.
Property worth £300,000:
- For a 25% share (£75,000), a 5% deposit is £3,750, and a 10% deposit is £7,500.
- For a 50% share (£150,000), a 5% deposit is £7,500, and a 10% deposit is £15,000.
These examples highlight how shared ownership makes buying a home more achievable compared to saving for a deposit on the full value.
What Affects the Deposit Amount?
A few factors will influence how much you need for a deposit:
The Property’s Total Value
The higher the property value, the larger your share and deposit will be. For instance, a 25% share of a £500,000 home is worth £125,000, meaning a 5% deposit would be £6,250.
The Share You Buy
You can choose to buy a bigger share if you can afford it. Larger shares mean higher deposits but lower monthly rent payments.
Lender Requirements
Different lenders have varying policies. Some might accept a 5% deposit, while others may ask for 10%.
Your Credit Score
Those with a good credit score might secure lower deposit requirements. A poor credit history could lead to higher deposits or difficulty getting a mortgage.
Location
Properties in high-demand areas, such as London, are often more expensive. This pushes up the total home value and, therefore, the deposit amount.
Mortgage and Deposit Combinations in Shared Ownership
Most shared ownership buyers need a mortgage for their share. Here’s how it works alongside your deposit:
- Have a deposit available (e.g., £5,000 for a £100,000 share with a 5% deposit).
- You secure a mortgage for the rest of the share (e.g., £95,000 for the same share).
- You pay rent on the remaining share of the home owned by the housing association (e.g., the unsold 75%).
Examples of Deposit Scenarios for Shared Ownership Homes
Let’s look at real-life examples to make this clearer.
Example 1: Starter Property
- Property value: £180,000
- Share purchased: 25% (£45,000)
- Deposit: 5% of £45,000 = £2,250
In this example, you’d need £2,250 upfront for your deposit. Your monthly costs would include a mortgage on the £42,750 remaining balance and rent on the unsold 75% of the property.
Example 2: Family Home
- Property value: £300,000
- Share purchased: 50% (£150,000)
- Deposit: 10% of £150,000 = £15,000
Here, the deposit is larger due to the higher property value and bigger share. The remaining balance of £135,000 would require a mortgage, and you’d pay rent on the unsold 50%.
Example 3: High-Value Apartment in London
- Property value: £500,000
- Share purchased: 25% (£125,000)
- Deposit: 5% of £125,000 = £6,250
London properties tend to be more expensive, but shared ownership reduces the initial deposit amount. Even for a high-value property, you would only need £6,250 in this case.
Tips to Save for a Shared Ownership Scheme Deposit
Saving a deposit can be difficult, but here are some tips to help:
- Set a savings goal based on an estimated property value and share.
- Open a Lifetime ISA (LISA) for a 25% government bonus on savings up to £4,000 per year.
- Cut unnecessary spending and redirect it into your savings account.
- Consider moving back home or sharing accommodation to lower living costs while saving.
- Keep track of your spending and create a realistic budget.
Every pound saved gets you closer to owning your home.
Can You Arrange a Higher Deposit?
If you’ve managed to save more, offering a higher deposit reduces how much you need to borrow through a mortgage. This can lower your monthly payments and make your application more attractive to lenders. For instance:
- If you planned to buy a 25% share worth £100,000 and saved a 20% deposit (£20,000), you’d need a mortgage for only £80,000 instead of £95,000 with a 5% deposit.
A higher deposit can make a big difference to your finances in the long term.
Things to Watch When Planning for a Deposit
There are a couple of extra costs to keep in mind when buying a shared ownership home:
- Mortgage fees: You may need to pay arrangement and valuation fees when applying for a mortgage. These costs add up, so budget wisely.
- Legal fees: Solicitors specialising in shared ownership can guide you through the legal process, but they charge fees. These typically range from £800 to £1,500.
- Rent in advance: Housing associations often ask for one month’s rent upfront.
- Stamp duty: In some cases, you may need to pay stamp duty on your share or the full market value.
Plan for these costs alongside your deposit to avoid surprises.
Final Thoughts
Shared ownership opens the door to homeownership through smaller deposits. You only need a deposit for the share you’re buying, which is far less daunting than saving for a traditional purchase.
If you’re considering this route, calculate your deposit based on the share and property price you’re aiming for. Research mortgage options and other costs to get a clear picture of your financial requirements.
Saving for a deposit might take time, but it’s worth it to move one step closer to owning your own home. Small steps can lead to big achievements.
Guinness Homes is proud to provide award-winning Shared Ownership and private sale homes in areas you want to live.
