How To Get A Shared Ownership Mortgage
How to get a shared ownership mortgage can be a tricky topic to get your head around, so here we answer typical questions clients ask us about buying a shared ownership property and what considerations lenders have when providing bad credit shared ownership mortgages.
What is a shared ownership mortgage and how does it work?
A shared ownership mortgage is where you want to buy a share of a property so, for example, if the property is worth £100,000 you might want to buy a 40% share of the property which would be £40,000. The remaining 60% of the property you will pay rent on typically to a housing association.
Why buy a shared ownership property?
Lots of people want to get onto the housing ladder but they struggle for many reasons, such as not being able to raise a large enough deposit, or based upon their earnings, they may not be able to borrow enough money for a mortgage. However, with a shared ownership property, the demands for a deposit are reduced as you are only buying a ‘share’ of the property. High Street banks and building societies typically require the client to put down a 5% deposit (of the share) whereas specialist lenders may lend to the client 100% of the share and therefore no deposit is needed.
Where are shared ownership mortgages available?
Most High Street banks and building societies offer shared ownership on mortgages, however they each have different criteria’s that they work to. For example, some lenders may require a 5% deposit, where others may want you to put down a 20% deposit.
There are also specialist lenders available via mortgage brokers who can help clients who have complex income, low credit score or bad credit history.
Can you get a shared ownership mortgage with bad credit?
Bad credit mortgages are available however it depends upon many factors. For example, what type of bad credit was recorded – was it missed payments, defaults or county court judgements or an IVA perhaps? When the bad credit was registered, how much was the bad debt for and is this bad credit still outstanding? There are many different contributing factors, so if you are applying for a shared ownership mortgage with bad credit, this will be dealt with on a case-by-case basis.
How much can I borrow on a shared ownership mortgage?
Lenders typically lend 4 to 4.5x your income however there are many other factors lenders need to take into consideration, for example – how long do you want the mortgage for, how is your income made up – if you get a lot of your income through commission or overtime the lender may only use 50% of this. Any financial dependants that you may have such as children and financial commitments such as loans or credit cards.
Your mortgage adviser will go through a full income and expenditure review to see exactly how much you can borrow and what is affordable.
How do you apply for a shared ownership mortgage?
You should get a copy of your credit report. CheckMyFile provides detailed credit reports which show the data from both Experian and Equifax credit agencies which lenders will review to see your credit history.
Once you have reviewed your credit report you should speak to a mortgage adviser and see what your mortgage options are and how much you could borrow. They will typically provide you with an ‘Agreement In Principle’ from the lender and with this information you can then start looking at properties.
What fees are there to set up a mortgage?
These are the typical mortgage related fees you will have to pay and when they are due. Your illustration from the lender or broker will confirm all these costs:
- Valuation Fee (payable upfront – cost depends upon the property value)
- Lender Arrangement Fee (This is normally paid on completion)
- Solicitor Fees (This will be paid in 2 parts, some upfront for your searches and the remainder on completion)
- Stamp Duty (For First Time Buyers buying properties under £300,000 no stamp duty is payable, however properties above this price stamp duty will be payable. This is payable on completion)
- Broker Fees (The broker should confirm how and when their fees are due)
What ongoing costs are there to owning a shared ownership property?
Apart from the mortgage which will generally be your biggest commitment, there are other monthly outgoings to bear in mind before buying a property such as:
- Rental payments on the share that you don’t own
- Service charge – This is to maintain the property, for example, if you buy a flat this cost would cover the upkeep of the grounds, lifts etc.
- Insurance Products – This is optional, however it would be advisable to consider taking out protection policies such as home insurance, life insurance, income protection and Serious Illness Cover.
When can I remortgage a shared ownership property?
Typically people remortgage when their initial fixed rate or discounted period has finished. At this point you can review your circumstances and look to source a new mortgage, either with your existing lender or switch to a new provider. If you would like to borrow more money you are able to do this, however most lenders only allow this if you wish to buy a greater share of the property – which is commonly known as staircasing.
How do you buy more shares of a shared ownership property?
The property would need to be valued by a surveyor as any further shares would be sold at the current market rate. Some Housing associations may limit the amount of shares you can own, so please check your lease for details.
What are the benefits of buying more shares in the property?
Here are the main benefits of staircasing and owning more shares within the property:
- Property Value – The more you own of the property the greater any price increase will benefit you.
- Rental payments – These will reduce as you own a greater share.
- Sell the property easier – If you own the property outright you may be able to sell the property on the open market, however if you own a share of the property the housing association might be entitled to find a buyer for your property which may take longer to find. Review your lease to confirm your options.
Get in touch with The Money Hub today
We hope that this guide has given you a great insight into shared ownership mortgages; how you can attain one, how they work and what the benefits of them are! As mortgage experts specialising in shared ownership mortgages, we are on hand to help with all of your questions. To speak to a member of our helpful team, please get in touch today.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.