Shared ownership mortgages is a sensible approach to become a homeowner, which enables you to purchase a portion of a property. Shared ownership, which enables buyers to buy a portion of a property, relieves some of the financial strains associated with house ownership. Homeownership can become a reality and costs can be kept to a minimal as a result.
A shared-ownership mortgage has its risks as well. Despite the fact that shared ownership is a government-backed programme, you must realise that a mortgage is a significant long-term financial commitment. This manual will outline the process of shared ownership and what to do next.
What is a mortgage with shared ownership?
A “part buy, part rent” mortgage is a shared-ownership mortgage. Instead of purchasing the entire property with the scheme, a portion between 10% and 75% is available. The fundamental justification for this is to make houses more accessible to first-time buyers.
The main benefit of a shared ownership mortgage is that it allows you to purchase a home with a reduced down payment. You may be able to climb the housing ladder now when you might have previously struggled. Once you’re in a position to do so financially, you can also buy larger shares. This may eventually result in you having full ownership of your home.
Mortgages for shared ownership: types
There are two types of shared ownership mortgages:
- Fixed-rate mortgage – This is where your mortgage rate will remain fixed for an agreed duration and carries less risk
- Variable rate mortgage – This is where your mortgage rate can go up and down but carries more risk
It’s not possible to get an interest-only mortgage or a buy to let mortgage on a shared ownership property.
How is shared ownership implemented?
Shared ownership is a buy-and-rent arrangement. It functions a little bit differently from conventional mortgages as a result. For instance, you would pay rent on the share that is owned by your housing association and mortgage on the share that you own.
Shared ownership’s key characteristics include:
- Stock is bought from a housing organisation.
- You would pay your housing association rent on the portion you do not yet own.
- This is a rent-to-own arrangement.
- You can purchase a stake in a house ranging from 10% to 75%.
- To purchase your portion of the property, you may use a shared ownership mortgage.
- It is possible to increase your shares; this process is known as staircasing.
Shared Ownership Mortgages application process
You must speak with a Help to Buy representative in the neighbourhood where you wish to reside if you want to apply for shared ownership. To make sure you qualify for a mortgage, it’s also advised to speak with a mortgage counsellor. This is so even if you might be eligible for the programme but not a mortgage.
In contrast, you can be eligible for a mortgage but not necessarily for the shared ownership programme. A mortgage counsellor will notify you of your options in either case. A lot of time, frustration, and money may be saved by doing your research in advance. There are various plans and mortgage varieties that might be more appropriate. For instance, getting a mortgage will be extremely difficult if you have bad credit.
Am I qualified for a mortgage with shared ownership?
You must fulfil the following requirements in order to be qualified for a shared ownership mortgage:
- Your household’s annual income cannot exceed £80,000, or £90,000 if you reside in London.
- You must either be a first-time home buyer or a previous homeowner who is no longer able to afford a property.
- You can also be eligible if you already own a stake of a property and want to transfer.
- To be eligible for the shared ownership programme,
- Have a 5% minimum down payment.
- Satisfy the requirements of your lender (credit check, affordability)
- Your desired property must be appropriate for shared ownership.
You must fulfil additional requirements to be approved for a mortgage on a part-rent, part-buy property. Your income, credit history, and general spending patterns can all be included.
Ownership by older individuals in joint ownership
The Older anyone’s Shared Ownership plan (OPSO) is a special programme for anyone over the age of 55. The plan is the same as shared ownership, but the highest stake is limited to 75%. However, you won’t be required to pay rent on the remaining 25% of your home after you hold a 75% interest in it.
Mortgages for people over 55 may be a little more difficult to get. This is due to the fact that shorter mortgage periods might result in greater costs.
Can shared ownership be applied to any kind of property?
Through resale programmes, you can purchase a newly constructed house or an existing home with shared ownership. Typically, housing associations employing the Help to Buy programme will be the source of this.
Your shared ownership home will initially have a leasehold tenure. This is because the other portion of your property will be owned by your shared ownership provider. As a result, you would pay rent in addition to your mortgage each month.
What benefits and drawbacks does shared ownership offer?
You must weigh the advantages and disadvantages of each mortgage type before committing. Similar to sole ownership, shared ownership is not appropriate for many homebuyers.
- For individuals with lower earnings, ideal
- You could profit from whatever equity you create if home values rise.
- Because you only pay the mortgage on the portion of the home you own, shared ownership can be more affordable than renting while providing you more influence over where you live.
- A reliable plan endorsed by the government
- There are few lenders that provide shared ownership mortgages.
- Homes with shared ownership are frequently leasehold, which can result in extra monthly costs such as service fees and ground rent.
- You will still be required to pay your housing association rent.
- Even if you want to increase your shares or sell the property, you must abide by the rules of your housing association.
Can I purchase a bigger portion of my house?
In a shared ownership house, it is possible to raise your share size. Additionally, you can continue purchasing shares until your entire property is yours. You can perform this procedure, known as staircasing, when you remortgage.
You would be eligible for a normal mortgage once you owned 100% of your home. Given that you would own a larger portion of your house and pose less of a risk to lenders, mortgage rates are likely to decrease. As you would own your property outright, you would also no longer be required to pay rent.
Can I ever sell my house?
You can always sell your shared ownership home if you have full ownership of it. Nevertheless, some housing associations will include a provision in their terms and conditions stating that they have the first right of refusal to purchase.
Speak with your housing provider if you own a portion of your house. There are specific rules and conditions for each housing association. Selling your share usually goes without a hitch, but you’ll probably need to go by the rules set down by your housing association.
Your housing association will ask for a third-party appraisal of the home. So that they can determine the precise worth of your home and the shares involved. Then, your housing association will determine whether to sell the property in its entirety or with a shared ownership option. However, neither choice should have any impact on your ability to sell your shares.
Mortgage rates for dual ownership
It’s significant to know that not all lenders provide shared ownership mortgages. Mortgage rates for joint ownership may be higher than usual as a result. Particularly if you’re using a 5% deposit, this is true.
Consult a mortgage expert who has knowledge of shared ownership. This is because we’ll search for the most appealing offers you qualify for while contacting appropriate lenders. You’ll be able to compare interest rates for various mortgages as a consequence.