Shared ownership mortgages are on the rise in the UK with their “part-rent, part-buy” route. More than just an alternative, it is a strategy that’s lifting off a huge weight of first-time buyers. This scheme opens the doors to a new home but one may worry if it truly is the right choice. This page will answer all your questions about shared ownership mortgages.

Shared Ownership Mortgage

Shared ownership mortgages have been created by the UK government to allow people from the lower income threshold to buy a home at a lower overall cost. You can purchase a portion of the home (25–75%) and the rest, you pay rent to the local council or a housing association. Over time, you can increase your ownership share through “staircasing”.

First-time buyers who are usually young professionals absolutely love a mortgage for shared ownership. It allows them to have a loving home of their own without emptying the pockets fully. Also, if you have purchased a property before, you can still qualify if you don’t own one anymore or have the financial ability to purchase one fully at the time of application. 

Don’t worry about the rent on the remaining property, they are usually set at a much lower rate than market value. Therefore, the arrangement would be more affordable than it would be renting a similar property. You will still be charged for other costs like maintenance, insurance, and service charges. 

There is a lot of math involved in this arrangement. Don’t let it daunt you and use a shared ownership mortgage calculator. You will be able to understand how much you have to borrow and pay each month. The calculation takes into account the property’s value, the share you’re buying, and the rent, giving you a complete picture of monthly outgoing. 

The Eligibility Criteria

There is a strict eligibility criteria set by the government. 

• Household income below £80,000 with regional variations.
• First-time buyer status, or no ownership of property at the time of purchase even if previously owned.
• Permanent UK residency or legal permission to live in the UK.
• A connection to the area, such as through family or work.

These are the general guidelines. There may be more specific rules by the provider you are interested in. 

The Application Process

Here are the basic steps you need to do during your application. 

• Check if you tick off all the requirements. There are online tools that help confirm your eligibility.
• Search for available properties under the shared ownership scheme. They can be found on listing websites of associations and developers.
• Contact a Shared Ownership Mortgage Broker. They will help guide you through the mortgage options and get you the best deal possible.
• Fill out the application form from an association or developer, providing details about your financial situation and eligibility. 

Falling Behind on Payments

One of the possibilities is that the lender may take action. This includes charging late fees or reporting the missed payment to a credit agency. In extreme cases, they may start repossession proceedings.

If you miss rent payments, the housing association shall contact you to arrange a payment plan. If it continues, they may opt for legal action which can lead to eviction. Thus, it’s important to maintain open communication with both your lender and provider about any struggles you may have, from beforehand. 

Lastly, seek help early. There are certain organisations who provide free advice on managing debt. A shared ownership mortgage broker can also help explore refinancing options and restructure the mortgage. 

The Pros and Cons

Pros

In a conventional mortgage, especially for people with a not-so-strong credit profile, the deposit requirements are massive but in a shared ownership mortgage, the deposit requirement is lower, as it is based solely on the share you are purchasing. This affordable deposit allows you to secure a beautiful home without the burden of a hefty price tag.

Secondly, you have the flexibility to increase ownership by buying additional shares. Each time you staircase, you will need a valuation to determine the current value of the property. So you can take baby steps to full ownership at your own pace.

Lastly, if you rented a similar property, it would have cost you much more. In a shared ownership home, the rest of the unsold portion is lower than the market value, so the rent is affordable in the long term. 

Cons 

Coming to the cons, the limited ownership, though offers a way onto the proper ladder, can limit your flexibility. Suppose you want to sell a shared ownership property, it would be more complicated than selling a fully owned home.

As we mentioned earlier, increasing your ownership gradually is a pro but the staircasing cost can be expensive. It involves paying for valuations, legal fees, and possibly extra costs of mortgage for shared ownership. Due to inflation, the market value would be higher than the initial cost at the time of buying. 

In case of remortgaging, you may face more complexities than usual. If you have staircased, then the remortgage shared ownership mortgages​ will need to have the additional share. Remember to keep these factors in mind when you opt for shared ownership so that with the help of a broker, you can prepare ahead for remortgage shared ownership mortgages​.

Conclusion

Even while trying to buy a home in the UK, financial struggles are very common. This is exactly why government schemes like shared ownership mortgages can be so helpful. There are a lot of things to consider, from the eligibility to the calculations to staircase as well as remortgaging. If you require guidance, expert advice is always recommended.

In UK Mortgage Finder, we take utmost time to cater to you and your needs with a team of specialists to help you take the next step towards your dream home. Contact us today.