What is a shared ownership mortgage?

Having the right understanding of mortgages, how they work and which ones work best for you is incredibly important. It could save you thousands. We all know mortgages weren’t readily discussed in schools – but we’re sure you know Pythagoras’ Theorem and use that everyday right? Well, don’t worry because we’re going to take you through everything you need to know about mortgages – and, more specifically, shared ownership mortgages.

The main mortgage types

There are a range of mortgages available to you – but the main two you need to know about are fixed rate mortgages and variable rate mortgages. And these are pretty much exactly as they sound:

Fixed rate mortgages are the ones where your interest rate is fixed for a number of years, usually 2, 3, 5 or 10.

Fixed rate mortgages are very popular. However, it does mean you won’t benefit if interest rates drop, and generally you will pay a higher rate than on a variable rate mortgage. However, if interest rates rise, you know that your mortgage will remain the same and this may provide you with comfort knowing your mortgage payments won't change.

Variable rate (or, standard variable rate) mortgages involve an interest rate set by each mortgage lender and the borrower (you) will revert to this once your initial fixed rate term expires. And, you guessed it, this rate can ‘vary’.

You do have to be prepared for your payments to change. However, variable rate mortgages do generally allow early repayment without charges – whereas fixed rates tend not to.

If you are contemplating which mortgage type is most suitable for you, it will mostly depend on your current financial circumstances.

A fixed rate mortgage is ideal if the following apply to you:

  • You are on a tight budget
  • You think that interest rates may rise
  • You prefer to be aware of what your repayments will be across a period of time

On the other hand, a variable rate mortgage may be more suitable if the following apply to you:

  • You require the lowest possible rate
  • You are able to increase your repayments if interest rates rise
  • You are in need of a scheme that does not have early repayment fees

If you require further guidance, we work alongside of TMP – our fantastic mortgage advisors who can give you the very best financial advice to help you get one step closer to your shiny new home. TMP can help you understand what you can afford when looking to get onto the property ladder. From finding the mortgage that is best suited to your personal situation to guiding you through the process until the point of exchange – TMP will be there for you every step of the way.

Additional mortgage types out there

Other mortgages usually fall close to or within the remit of these two types, for example:  

Tracker mortgages: These are a type of variable rate mortgage. With a tracker mortgage your interest rate ‘tracks’ the Bank of England base rate. The interest you pay will be the base rate plus a further percentage set by your lender. With many tracker mortgages, you will only pay the tracker interest for a fixed term before switching to a variable rate – however there are some lifetime tracker mortgages.

Discount mortgages: With a discount mortgage you pay the lenders standard variable rate but with a set percentage discounted. So, for example, your lender has a 3.5% interest rate, and you get a 1% fixed discount, which means your final interest rate is 2.5%. Remember – discount mortgages are still variable rate mortgages.

How do shared ownership mortgages Work?

When you buy a shared ownership home, you will only need to take out a mortgage on your percentage share – meaning a lower amount borrowed and a lower deposit paid – a win win situation. All that is left for you to do after that is pay rent on the remaining share.

Most online mortgage calculators aren’t applicable to shared ownership mortgages as they don’t consider the element of rent. When looking for a mortgage, make sure to check that your lender does offer shared ownership mortgages as not all lenders do.

When it comes to starting the process of getting a shared ownership mortgage, you will first have to be purchasing a shared ownership home. Aster Sales can guide you through the process – so get in touch today!

The type of mortgage you choose will very much depend on your personal and financial circumstances, so you will need to discuss this with a financial advisor or a mortgage broker. They will also be able to advise you on the entire process of choosing your lender and the right deal for you. Your dream of buying a home is only round the corner!


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