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What Is the Purpose of a Shared Ownership Mortgage?
The purpose of a shared ownership mortgage is to help those who cannot afford to buy a home or take on a traditional mortgage. In a shared ownership mortgage, the mortgage applicant agrees to pay for a mortgage to buy part of the home they intend to live in. The rest of the house remains under the housing association or private developer’s ownership. Simply put, you are buying a share in the house.
How does a shared ownership work?
When you enter into a shared ownership mortgage, you’re paying to own between 10% and 75% of your home. This means that when the mortgage term ends, you do not officially own your home outright.
You will then pay rent on top of your mortgage for the share of the house that you don’t own. This normally comes in the form of ground rent plus service charges.
Instead of dealing with maintenance and repair yourself, this is primarily taken care of by your landlord.
It is possible to buy the share that you don’t own from the housing association in 1% instalments.
Who is a shared mortgage for?
Shared mortgages are aimed at those who are on a lower income but still want to start climbing the property ladder.
Specifically, shared ownership mortgages are aimed at:
- Former homeowners who now cannot afford to buy
- First-time buyers
- People who are currently renting a housing association property or a council house
- People who currently live in a shared ownership property
To qualify for a shared ownership mortgage, your household income needs to be less than £90,000 per annum if you are moving into a house in London or less than £80,000 if you’re moving to a house somewhere in the UK outside of London.
What type of home can you buy through a shared ownership mortgage?
Through a shared ownership mortgage, it’s possible to buy an existing home or a newly built home. The homes you can buy with it really depend on the terms of the mortgage lender.
You can apply for a shared mortgage through a housing association.
How does a shared mortgage differ from a traditional mortgage?
Like a regular mortgage, you still have to put down a deposit for your share of the building. However, unlike a traditional mortgage, you don’t own your house at the end of the mortgage term. Plus, the deposit you’d be expected to put down for a shared ownership loan is much smaller than that of a traditional mortgage. This helps low-income households who struggle to save up a significant deposit.
Can I sell my home if it has shared ownership?
In order to sell the home that you bought through a shared ownership mortgage, you’ll need to first buy the rest of the home from your landlord. You cannot sell the home if you’re still renting part of the home from someone else unless you find someone willing to replace you in the shared ownership scheme.
What happens if the property value changes in a shared ownership mortgage?
If the house increases in value, the added equity will be split between you and your landlord, based on each of your share sizes. The only issue is that you’ll have to pay a higher amount to buy your landlord’s share from them.
If the house decreases in value, you could use the opportunity to buy the rest of your house from the landlord at a lower cost than you would have paid had the value risen.
The downside of your house decreasing in value is that you could end up having to sell your property at a loss.
How to Apply for a Shared Ownership Mortgage
The shared ownership scheme was created by the government and forms part of their Help to Buy scheme. To apply for a shared ownership mortgage, you can apply through a Help to Buy agent. You can reach them by contacting your nearest housing association.
Like a regular mortgage application, you’ll have to submit evidence of your income, credit history, and savings. You’ll also be able to choose a preferred area.
If you currently live in a council house, you can apply for a shared ownership loan through Social HomeBuy. This scheme is set up to allow you to buy a share of the home you already live in.
What Does Shared Ownership Staircasing Mean?
Staircasing is the term used to describe the process of slowly buying your landlord’s share from them. Before 2021, you could buy your landlord’s share at 5% and 10% increments. However, changes were made to the shared ownership scheme, and now you can only buy the other share in 1% increments. While this means it takes much longer to own your property outright, at least it can still be done.
Of course, the amount you need to pay to staircase all the way depends on the price of your home and how much you currently own.
Shared Ownership Mortgage Pros and Cons
Pros:
- You can start climbing the property ladder early
- You will have cheaper mortgage payments
- You could still one day own your home through straircasing
- You don’t have to save as big a deposit
Cons:
- You have to pay rent and mortgage repayments
- You have to pay service charges and ground rent
- You might not be able to make many home improvements
FAQs
Is it easy to get shared ownership mortgages?
It’s fairly easy to get a shared ownership loan if you have a good credit score and are happy to pay rent to a landlord. You also require a good track record of paying rent on time. You can apply for shared ownership mortgages through housing associations.
How much deposit do I need for a shared ownership?
Shared ownership mortgages require a deposit that equates to around 10% of your share. However, your deposit will depend on the terms set out by the housing association.
Final Thoughts
A shared ownership property can help you start climbing the property ladder. They’re provided through a housing association and allow you to own part of your home through shared ownership. Shared ownership properties are beneficial to those who don’t make enough income to afford a traditional mortgage.
Additional Sources:
https://www.halifax.co.uk/mortgages/help-and-advice/shared-ownership-mortgages.html
https://www.moneysupermarket.com/mortgages/first-time-buyers/shared-ownership-schemes/