Property Buying Guide
Shared ownership mortgage basics
To buy a home through New Build HomeBuy or any other shared ownership scheme you will need a special shared ownership mortgage. You may also need a deposit. In the run-up to the last general election 'shared ownership mortgage' became a bit of a buzzword, generating a great deal of interest in this type of mortgage. As a result, FirstRungNow has received a large number of queries on the subject.
Below we look at how mortgages for shared ownership work.
What is a shared ownership mortgage?
A shared ownership mortgage enables qualifying applicants to buy a share in a property, usually part or fully funded by a mortgage, and pay rent to a housing association for the rest. The rent is normally a percentage of the value of the share of the property owned by the housing association and is kept as low as possible. Eventually you will be able to buy more of the housing association's share of the property.
As a result, this special type of mortgage potentially allows you to buy a bigger property than you would otherwise be able to afford. Joint ownership (buying with a friend) and shared ownership can also sometimes be combined.
Which lenders offer shared ownership mortgages?
As shared ownership purchases are seen as less attractive business propositions not all lenders will offer mortgages for this purpose. There are currently around 25 lenders that do so but this number is growing. Around half of these will lend you 100% of the value of the share you are buying. Interest rates may be slightly higher than for conventional mortgages but fees are generally comparable.
Make sure you budget for items such as legal fees and stamp duty, if applicable, as you cannot borrow more than 100% to cover such costs.
To find out how much you can borrow and how much that would cost you, request shared ownership mortgage advice.
What criteria apply?
Similar criteria for lending apply than for conventional mortgages but some lenders will not lend on certain types of property – above a certain number of stories, for example – so check this.
The scheme must be through a registered social landlord for a mortgage to be granted and the lease must contain an adequate mortgagee protection clause, which protects the lender against any losses should you fall into arrears with your repayments and the property is repossessed. The initial share purchased must usually be at least 25%.
What if I want to buy further shares?
Once the housing association has granted you approval to buy a further share of the property you should apply to your lender for a further advance. The lender is likely to want to carry out another valuation of the property for which fees will be payable and the housing association may also want to get its own valuation done.
Advice
If you need to take out a mortgage to enable you to buy a share of a property, you'll need to know how much you can borrow and what is the most suitable mortgage for your circumstances.
More about shared ownership:
What is New Build HomeBuy and how does it work? l Who is eligible and what are the selection criteria? l Special features and how to apply l What is involved with shared ownership and who can apply? l How do I increase my share and how much do properties cost? l What rights and responsibilities do I have? l Are there restrictions on resale? l Can I buy with someone? And what about finance and legal issues? l Where do I start and what happens next? l What questions should I ask? l Will shared ownership really enable more first time buyers to buy a home? l Benefits and pitfalls of shared ownership l Shared ownership schemes run by house-builders l The First Time Buyers Initiative/English Partnerships