What is a Shared Ownership Mortgage?
A shared ownership scheme – whereby the `homeowner` part owns and part rents the property. This enables people to have lower mortgage repayments to make each month, albeit there is still the monthly rent to take into consideration, and over time allows you the option to buy off the `rented` part of the property if desired.
A shared ownership mortgage is a government scheme which is primarily focused on helping people to get onto the property ladder who may otherwise not be able to due to their income and savings in relation to property prices. Between 25% and 75% of a property is usually bought from a housing association or house builder, allowing you to take out a smaller mortgage, usually with a lower deposit and then paying rent on the remaining part.
How are Shared Ownership Mortgages different?
One of the main differences for those who take out a shared ownership mortgage is that the deposit required is only for the part that is to be borrowed – therefore, for example in a £200,000 property that you are looking for a 50% stake, a 10% deposit required would be £10,000. A `regular` 90% LTV mortgage to buy the property outright would be twice this amount at £20,000.
There are a number of criteria which must be met in order to qualify for a shared ownership mortgage, including maximum incomes, the fact that you should be a first time buyer or previous homeowner who cannot afford to buy now, or renting from a housing association or the council, or have a long term disability. Another stipulation is that you must live in the property and cannot rent it out either fully or partially.
A process known as ‘staircasing’ is also a benefit of the shared ownership mortgage giving you the ability to purchase more of your home from the housing association or house builder as and when you are ready to and where your circumstances allow.
The other big difference between shared ownership schemes and other mortgages is in when you come to sell. If you have purchased the entire 100% of the property, you can sell it yourself. However, the housing association usually has the right of refusal for the first 21 years after you have bought your property. If you do not have the full ownership of your property, the housing association will have the right to find their own buyer initially.
Shared Ownership Considerations
There are a number of factors that you should consider before going ahead with a shared ownership mortgage, including:
- A shared ownership scheme with a house builder or housing association is different to buying a property with a friend or relative.
- The best way to find a shared ownership eligible property is to go to an agent in the area that you would like to live in.
- The prices that you pay for increasing your share will usually be in line with the rise and fall of the price of your property – so if the value increases, you will have to pay more, and likewise if it falls, you will pay less.
Getting on the housing ladder can represent a challenge for many people so for those who are on a low income it can appear almost impossible without some government help. Their affordable housing schemes are aimed directly at providing this service and can help the people to become homeowners who would never have thought it possible before.
How to Find a Shared Ownership Mortgage
If you are thinking about applying for a shared ownership mortgage and fit the criteria, the best place to start is with an adviser who understands this market – such as our specialist shared ownership mortgage advisers here at Transparent Mortgage Services. We can help you to understand your options and find the right scheme for you.