A shared ownership mortgage is the borrowing you take out to help you purchase the share of a property that you purchase using the shared ownership scheme – usually between 25 – 75%. The mortgage covers the share that you own, and the Housing Association owns the remaining share, which you will pay below-market-value rent on.
A shared ownership mortgage is only required on the percentage of the property that you purchase, the amount borrowed is often much lower compared to purchasing a property outright.
Over time, you can ‘staircase’ out of shared ownership by buying some, or all, of the share of the property owned by the Housing Association. This reduces the amount you pay them in rent and increases your share of ownership in the property up to the full 100%.
Shared ownership eligibility
The shared ownership scheme has been around since the 1970s, and today there are more than 200,000 shared ownership properties in the UK. It was designed to help those who are struggling to save for a deposit to get onto the property ladder or low-income earners.
Shared ownership mortgages are available to first-time buyers, or to anyone who used to own a home and now cannot afford to buy a new one. You must be at least 18 years old to qualify and your household income must be less than £80,000 a year, and £90,000 in London.
Aside from the above criteria, anyone can apply for shared ownership. It is not available on every property however and is only applicable to certain homes. These are usually specifically purpose-built for the scheme. That’s generally why you will find most shared ownership properties on new build developments.
Before you begin searching for a shared ownership property, you need to find your local Help to Buy Agent. You can do this by heading to the government’s Help to Buy website. Once you’ve found your local agent, their website should contain details of how to apply for shared ownership. Once accepted, you can begin looking for a shared ownership property.
Taking out a shared ownership mortgage
It’s always worth speaking to a mortgage advisor and working out your shared ownership budget, once you have been approved for the shared ownership scheme and found the property you’d like, you will need to put down a reservation fee. This is typically for the sum of £500, but it can vary geographically. Then it’s time to find a shared ownership mortgage.
Not all mortgage lenders offer shared ownership mortgages, so using a mortgage broker, such as us here at Mortgage Light, will make this process much easier. To begin the process, we will ask you for the following information so that we can carry out the necessary financial checks:
- Copies of your last three months wage slips and proof of any commission or bonuses earned
- Copies of your last three months bank statements
- Proof of ID and proof of address
- Evidence of any cash deposit you have available
From there, we will search the market to find you the most suitable deals available to meet your personal circumstances. We will then help you to complete a mortgage application and submit this, along with all the supporting documentation required, to the lender for their consideration.
Benefits of shared ownership
If you are struggling to save the usual 10%+ deposit generally needed to purchase a home, then the shared ownership scheme may be a suitable option to help you take that first step onto the housing ladder.
Low-income earners are often more likely to obtain a mortgage offer under a shared ownership scheme because the amount of borrowing required is usually much smaller and is, therefore, more affordable. You may also be able to buy a property without any cash deposit being required, leaving you to just have to budget for your solicitor’s fees and any other mortgage-related costs.
Using shared ownership might also enable you to purchase a bigger house or live in a more desirable area than you might otherwise be able to afford. A certain number of shared ownership homes are now often required to be built as a condition of obtaining planning permission for a new housing development, thus helping to put affordable housing in the heart of sought-after areas.
If you are currently renting your home, then making use of the shared ownership scheme can often work out as a comparable or even cheaper alternative. Yes, you’ll still be paying some rent, but only on the share of the property owned by the Housing Association. And remember, the rent rate is generally less than the rate charged on the open market, at typically only 2.75% of the property value per annum. The rest of the money you pay each month will be going towards paying off your shared ownership mortgage.
Let Mortgage Light help you
Shared ownership isn’t complicated, but not every lender offers shared ownership mortgages. That’s why it can be beneficial to have an expert on your side who knows where to turn to find the right mortgage deal for you, saving you time and effort.
At Mortgage Light, we have dealt with shared ownership mortgages since we began trading. We have helped many people to own 100% of their shared ownership property after only a few years, depending on their circumstances. If you are hoping to make use of this affordable scheme, contact us today.