What is a shared ownership mortgage?
A shared ownership mortgage is a type of mortgage product used when buy a percentage of a property. This property must be available via the shared ownership scheme. With certain criteria to meet, they are not available to everyone. As you are only buying a smaller percentage of the property and paying rent to cover the rest you won’t need to borrow as much as if buying the home outright. As a result, the deposit needed is significantly less.
How much of a house can I buy with a shared mortgage?
Shared ownership schemes allow you to buy a percentage of a property. This amount is normally capped at a minimum of 10% and a maximum of 75%. How much of the home you can purchase with a shared ownership mortgage will depend on the amount of deposit you have saved and your current financial circumstances.
You may eventually be able to buy the property outright and this will be covered further into this blog.
How much deposit will I need for a shared ownership mortgage?
The more you have saved for a deposit, the cheaper your monthly payments for your mortgage will be. However, the purpose of this scheme is to help those who may not be able to save a large deposit. In many cases, deposits of just 5-10% are suitable for a shared ownership mortgage.
How do I know if I’m eligible for a shared ownership mortgage?
Shared ownership mortgages aren’t available for everyone so you should check your eligibility before applying. Should you not be eligible, your route to property ownership is likely to be via the open market and a regular mortgage. To be eligible for a shared ownership mortgage you’ll need to:
- Have a household income of less than £80,000 per year (£90,000 or less if in London)
- Have a good credit score and no bankruptcies or CCJs against you
- Not have any arrears for any rent or mortgage on another property
- Not own any other property unless you are already in the process of selling it
Complying with these gets you closer to securing a shared ownership mortgage. But, you’ll also need to see match one of the following criteria also:
- You are a first-time buyer
- You live in a shared ownership housing but want to move
- You have owned a home but can no longer afford to buy one via a regular mortgage
- You need a new home after specific personal issue such as relationship breakdown or death
With the criteria met, you can apply for a shared ownership mortgage but to do this, you first have to be registered for the shared ownership scheme.
Registering for shared ownership
Your town or city will have a housing association or shared ownership provider, sometimes it will have more than one. They will double check your eligibility, assess your finances, and see what the expected rent would be. From here you will be able to see how much you need to borrow on the shared ownership mortgage.
The providers of the shared ownership properties are listed on the government website and from finding these providers, you’ll be able to look at the available homes in your area.
How to apply for a shared ownership mortgage
If you have now found the property you want and have received your financial assessment have an idea of what you’ll be paying in rent and what size share you could buy.
Armed with this information, you can approach a lender. However, shared ownership mortgages are not available with all lenders. As a result, it often pays to visit a shared ownership mortgage broker as they can put forward all the available products that would suit your needs. This not only saves you time, but potentially money too.
When you apply for the shared ownership mortgage, you’ll need to provide the following:
- Proof of name
- Proof of address
- Proof of income
- Proof of any benefits you may be earning
- Proof of deposit funds
- Information relating to employment. This will include whether you are full-time or part-time, on a permanent or temporary contract and what your salary is
- Bank statements for the past three months
In addition to this information, you’ll also need to show how much you are expected to pay for the rental share, service charges and ground rent. This will allow the lender to have a clearer indication of what they can lend you.
Can you buy any property with a shared ownership mortgage?
It all depends on which homes are part of the scheme. Quite often they are new builds or properties that have remained within the housing association portfolio.
Types of shared ownership mortgage
Like with regular mortgages, you can look at fixed or variable-rate mortgages for shared ownership properties. What you choose should be given careful consideration.
Fixed-rate shared ownership mortgages
The fixed-rate mortgage for shared ownership property is popular. You know exactly what you are paying each month, and that amount will remain the same for the initial fixed rate term. However, should rates drop, you could be stuck at a high rate for years.
Variable rate shared ownership mortgages
Variable, as the name indicates, means your rate could change month to month. This can be beneficial if the market is settling down but extremely expensive if rates suddenly rise.
Can I buy more of the property with a shared ownership mortgage?
You can do what is known as staircasing. This is where you gradually add to the percentage you own. For example, you currently own 35% of the home but would like to increase your ownership stake a little more. You could, perhaps increase to 45%, then a few years later make it 55%. How far you can increase your stake will depend on the terms of your agreement. In some cases, 100% ownership is possible but many shared ownership schemes cap staircasing at 80/85%.
It should be noted that there are fees involved with staircasing and these are applied every time you increase your share by 5% or more. These fees can be as much as £500 each time.
If you are looking to secure a shared ownership mortgage, speak to our team at Mortgage Saving Experts. We are your fee-free mortgage broker who finds you the best possible deals for the property plans you have in mind. Whether it be shared ownership, equity release mortgages or any other type of home ownership loan, allow us to help you navigate your way to affordable home ownership.
