Shared ownership mortgages are a bit different from traditional mortgages. Here’s a comprehensive overview:
What is Shared Ownership?
Shared ownership is a scheme designed to help people buy a share of a property (typically between 25% and 75%) and pay rent on the remaining share, which is owned by a housing association or similar body. Over time, you can buy more shares in the property, a process known as “staircasing,” until you own it outright.
Types of Shared Ownership Mortgages
- Shared Ownership First-Time Buyer Mortgages:
- Eligibility: Generally for first-time buyers or those who previously owned a home but cannot afford to buy a property outright.
- Deposit: Usually lower than traditional mortgages, often around 5% of the share you are buying.
- Loan-to-Value (LTV): The LTV ratio is calculated based on the share of the property you’re purchasing.
- Shared Ownership Remortgages:
- Purpose: Remortgaging can help if you want to buy additional shares or reduce your monthly payments.
- Conditions: You might need to prove that you’re still eligible for shared ownership and meet affordability criteria.
- Staircasing Mortgages:
- Objective: To increase your share in the property.
- Process: Similar to a new mortgage application, but based on the new value of the property.
Key Considerations
- Eligibility Criteria:
- Income limits.
- Local authority residency requirements.
- Maximum property value limits.
- Costs:
- Rent: You’ll pay rent on the portion of the property you don’t own.
- Service Charges: These can be significant and cover the upkeep of communal areas.
- Ground Rent: Typically applicable in leasehold properties.
- Affordability:
- Lenders will assess your ability to afford both the mortgage and the rent payments.
- Consider your overall financial health and long-term stability.
- Interest Rates:
- Fixed or variable rates are available.
- Ensure you understand how interest rates will affect your payments over time.
- Lease Terms:
- Check the lease agreement carefully, including any restrictions or obligations.
- Property Value Fluctuations:
- The value of the property can affect the cost of staircasing and future mortgage applications.
Application Process
- Check Eligibility: Ensure you meet the criteria for shared ownership.
- Find a Property: Work with a housing association or look for properties that offer shared ownership.
- Mortgage Broker: Consider working with a broker who specializes in shared ownership.
- Application: Submit your mortgage application, including proof of income and affordability.
- Valuation: The lender will arrange a valuation of the property.
- Offer and Completion: Once approved, you’ll receive a mortgage offer and complete the purchase.
Shared ownership can be a great way to get onto the property ladder, but it’s essential to fully understand the terms and implications. If you’re considering this route, working with a mortgage advisor who has experience with shared ownership can be beneficial.