All you need to know about shared ownership mortgages

How Shared Ownership Mortgages Work and Who They’re For

Shared ownership mortgages have become an increasingly popular method for first-time buyers and those on a lower income to get onto the property ladder. As housing prices continue to rise, traditional methods of buying can sometimes seem out of reach. This is where shared ownership schemes come in as it can make it easier for first-time buyers and those on lower incomes to enter the property market. In this article, we’ll go over everything you need to know about shared ownership mortgages.

What is a Shared Ownership Mortgage?

Shared ownership is a scheme that brings together the concepts of buying and renting property. With shared ownership, you buy a share of a property, say 25% to 75%, and pay rent on the remainder which is owned by the housing association. Over time, you can increase your share in the property – a process known as ‘staircasing’ – until you own the property outright.

A shared ownership mortgage is a loan for the portion of the property you wish to buy. It differs from a standard mortgage in that you only borrow against the percentage of the property you’re purchasing, not its full value.

Who Can Benefit from Shared Ownership Mortgages?

The shared ownership scheme is primarily designed for first-time buyers and those who once owned a home but can’t afford to buy one now. Generally speaking, shared ownership schemes aim to help those who:

• Can’t quite afford the mortgage on 100% of a property.
• Are struggling to save for a larger deposit on a full mortgage.
• Earn a household income of less than the set threshold (this varies depending on the location and specific scheme).

So at its core, shared ownership looks to make it easier for people in these scenarios to purchase their own property and break the cycle of property rental.

Pros and Cons of Shared Ownership Mortgages

Although the shared ownership scheme holds a great deal of potential for some people, such as first-time buyers, it isn’t suitable for everyone. So, to help you better understand if a shared ownership mortgage is the right choice for you, let’s take a look at some of its pros and cons:

Pros of Shared Ownership

• Lower Initial Costs: You need a mortgage deposit only for the share you’re buying, not the total property value. This often means a smaller deposit.
• Flexibility: You can increase your ownership share over time, allowing you to adapt to changing financial circumstances.
• Security: You have the security of homeownership for the share you’ve bought and can’t be easily evicted.

Cons of Shared Ownership

• Rent: You pay rent on the portion you don’t own, so you’re still not entirely free from monthly rental costs.
• Limited Control: As part of a housing association, there might be restrictions on what you can do to the property.
• Staircasing Costs: If you decide to buy more shares in your property, you’ll face additional costs like valuation fees and legal expenses.

The Process of Applying for a Shared Ownership Mortgage

Applying for a shared ownership mortgage is similar to a traditional mortgage application but with a few additions. So, let’s go over the steps you’ll most likely take during your shared ownership mortgage application:

• Determine Eligibility: Check if you’re eligible for shared ownership. Eligibility criteria can include income limits, being a first-time buyer, or not owning another property.
• Find a Shared Ownership Property: Once eligible, you can search for available shared ownership properties in your preferred location.
• Apply for a Mortgage: Approach lenders who offer shared ownership mortgages. Each lender will have its own criteria, and it’s crucial to shop around for the best deal.
• Legal Checks and Survey: Just like a traditional mortgage, the property will undergo legal checks and possibly a survey. It ensures everything is in order with the property you intend to buy.
• Complete the Purchase: If everything is in order, you can proceed to buy your share of the property.

Staircasing: Increasing your Ownership Share

As your financial situation improves, you might decide to buy more of your property. This process is known as staircasing and is a unique characteristic of shared ownership. Most schemes will allow you to increase your share in 10% increments until you own the property outright.

Remember, when staircasing, the cost of buying more shares will depend on the property’s current value, which could be more or less than when you initially purchased.

Selling a Shared Ownership Property

If you decide to sell your shared ownership property, the housing association usually has the ‘first refusal’ right. It means they have the option to find a buyer for your share or the property as a whole.

However, if you’ve staircased to 100% ownership, you can sell on the open market without needing to give the housing association the first refusal.

Is Shared Ownership Right for You?

Shared ownership mortgages offer a lifeline to those who might find the traditional route to homeownership challenging. With lower initial costs and the flexibility to adjust your ownership percentage over time, it’s a viable option for many. However, like all financial commitments, it’s crucial to do thorough research and ensure that shared ownership aligns with your long-term financial goals.

If you have any questions about the Shared Ownership scheme, or would like guidance finding a mortgage that suits your needs, please contact our team at WIS Mortgages today.

Frequently Asked Questions

Q. Do I need a special mortgage for a shared ownership property?

A. Yes, you’ll need to apply for a shared ownership mortgage if you want to purchase a property through the shared ownership scheme. These mortgages allow you to buy a portion or share of the property rather than purchasing it outright.

Q. Can you be refused shared ownership?

A. Although you can still get a shared ownership in many situations, such as if you have poor credit, it isn’t a guarantee. Lenders will look at your specific circumstances to decide whether or not a mortgage will be viable for you.

Q. Who pays for repairs on a shared ownership property?

A. Generally speaking, you’ll be responsible for all repairs and maintenance on a shared ownership property. Some costs might fall under the warranty of the building, or by the landlord/developer if the property is still within the initial repair period.

As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments.