At Cheshire Money, we’re very adaptable and experienced in all kinds of mortgages, so if you’re wanting clarification regarding ‘what is a shared ownership mortgage?’, then you’ve come to the right place. We have a whole host of independent advisers with access to the whole of the UK’s mortgage market, so we can tailor your circumstances to the best product possible.
Firstly, we’ll explain what shared ownership means, as it’s slightly different to the Help to Buy Scheme, in that with a shared ownership property, you will pay rent and your mortgage, whereas, with the Help to Buy scheme, you will only pay your mortgage. Shared ownership mortgages were developed to help people get onto the property ladder, thus offering long term stability without over-stretching the budget.
Given you’re reading, means you’re potentially a First Time Buyer, wondering how you can get onto the property ladder, or perhaps you’ve recently separated from your partner, or you’re over 55 and would like to downsize, but not spend your investments?
Either way, we’re here to help and would welcome a chance to chat through your requirements, be that in the Cheshire area, or further field.
What is a shared ownership mortgage?
Quite simply, a shared ownership mortgage helps you to buy a property and pay for it via a mortgage payment and a rental payment. Because you don’t need as large a deposit as you would for a more traditional mortgage, it also means you can possibly get on the ladder sooner and potentially buy a property in a more desirable area, due to the amount of properties available in such wide areas. Generally speaking, properties are new build or are an existing home already owned by a housing association.
You would typically put down a deposit of between 5% and 10% of the share of the property you are buying. The mortgage would cover anywhere between 25% – 75% of the property’s value and then you would pay rent to the housing association on the remainder. Take a look at this example, which will simplify it.
Imagine you’re wanting to buy a 25% share of a £300,000 property under a shared ownership scheme:
a) Your share - £75,000
b) Your deposit - £7500 (10% of the value of your potential share)
c) Housing association share - £225,000
d) Mortgage needed - £67,500
Unlike the private rental market, housing associations charge less rent – up to 80% of the market value. So if the subsidised rent on the property is £80 per week and you own a 25% share, you’ll pay £60 per week, which covers the housing association’s proportion.
Who is eligible for a shared ownership mortgage?
As mentioned earlier, to acquire a shared ownership mortgage, you have to be a first time buyer, a former home-owner who now can’t afford to buy a new one, or you’re an existing shared owner. Also worth noting, your household income must be less than £80,000 per annum (£90,000 for London). Plus, very importantly, you’ll need to be able to prove that you’re not in mortgage or rent arrears, that you have a decent credit history and can afford the costs of buying a shared ownership home.
Is it worth considering a shared ownership property?
We think so yes. Right now, perhaps more than ever before, with rising house prices and buying on the open market feeling more impossible than ever, Cheshire Money can help you with the process by providing your shared ownership mortgage.
You’ve possibly had enough with renting, but you’re finding it tough to raise the usual deposit required. Look at it as an investment, it can be your way of getting onto the property ladder if you can’t afford to do so on the open market.
How do I apply for a shared ownership mortgage?
This is dependent on whereabouts you live. If you’re in Cheshire (England), then the first port of call would be your local housing association or you can visit www.helptobuy.gov.uk for lots of useful information.
At which point, once you’ve found your new home, Cheshire Money can jump onto the saddle arrange your mortgage for you and help you get onto the property ladder taking the stress out of it for you. Before you know it, you’ll be choosing your fixtures and fittings!
As with all mortgages, it is secured on your home, which you could lose if you do not keep up your repayments.
Is there an alternative to a shared ownership mortgage?
Outside London, you could check out Help to Buy: Equity Loan. This is a government scheme whereby you would be loaned 20% of the property value. At which point, you could then borrow 75% from Cheshire Money’s panel of lenders, meaning you’d only need to save up a 5% deposit. In London, the proportions are slightly different, but ask and we can advise.
How much deposit will I need to get onto the property ladder?
You’ll be pleased to know, that as you’re looking to get a shared ownership mortgage, because you will only own part of the house, as a knock on effect, you will need a smaller deposit, usually between 5% and 10% of the share that you’re purchasing. This is great, especially for first time buyers, as it’s quite often the enormous deposit that can be somewhat off-putting when attempting to get onto the property ladder. Not forgetting though, you’ll need enough money to cover solicitor fees, moving costs, the management fee (aka leasehold fee) and potentially stamp duty. Additionally, as the property is being leased to you by the housing association, you will also have to pay an annual charge know as ground rent.
Is it possible to buy a bigger share of my home in the future?
Absolutely yes. This is known as ‘staircasing’. Simply put, if you want to increase the share of the home that is actually yours, then you may purchase chunks of the rented part of your home, from the housing association. To do this, the housing association will need to carry out a valuation as it may well have increased in value over time. The cost of your new ‘chunk’ of house, will be determined on the new mortgage valuation. Equally worth making a mental note – if your home’s value has gone down, then you will pay less for your additional shares. Don’t forget – the more shares you buy of your home, the less rent you will be paying to the housing association.
Obviously, when it comes to increasing the mortgage to enable you to do this, then Cheshire Money will be more than happy to assist.
What are the advantages of shared ownership?
As long as you meet the requisite eligibility criteria, then a shared ownership scheme can be a fabulous way to get your own home.
- For example, if you’re on a lower income, you’ll benefit from the scheme offering you and your family more security.
- Equally, you might find you’re able to buy a larger property than you would have otherwise been able to afford, or perhaps a better property in a more desirable area.
- You’ll also benefit from house price rises, as your share will too rise in value. Shared ownership can sometimes be cheaper than renting, but make sure you do your sums first!
Are there any disadvantages of shared ownership?
- It is fair to say that there won’t be as many lenders who are willing to fund a shared ownership mortgage. But, you’re in the right place. Cheshire Money are experienced in all kinds of mortgage, with lots of advisers to hand who can find the best lender for you.
- Selling a shared ownership property can take longer, as the housing association has first refusal to buy the property back which may tie your hands for longer than you’d like.
- Shared ownership properties are usually leasehold, meaning it will be likely that you’ll have a monthly service charge of some description, especially if you buy an apartment in a block.
- You’ll also have to contribute to any major refurbishments that are required, regardless of the value of your ‘chunk’. Can get expensive.
- You’re not permitted to sub-let, so no renting of your shared ownership property.
- If you can’t pay your mortgage or rent, the housing association is very unlikely to lend a helping hand, given they’ve already helped with your purchase.
Can I sell my shared ownership home and if so how?
If you achieve 100% ownership, then yes, you can sell your property yourself. But, within 21 years after you first purchased your home, the housing association get first refusal to buy. If you don’t own 100% of your property, then the housing association will also be able to market your home for a certain period of time. Their valuer will set the ‘for sale’ price too.
What will happen if the value of my house has changed when I’m ready to sell it?
When the property is sold, you and the housing association will split the profits, depending on the share that you each own. But, if the value of your property falls, you could possibly be in such a situation that means you have to pay more money into a property that is decreasing in value. However, that could also work to your advantage, as you’ll potentially be able to buy a bigger share in your home at a lesser price.
Can I renovate or decorate my home?
Yes, to a certain extent. You may of course hang up pictures or paint the walls. But, anything considered a major refurbishment such as knocking a wall down, putting in a new kitchen or perhaps even an extension, will require approval from the housing association.
That said, there is some good news! Like most lenders, the housing association will be keen for you to invest in your home so are quite likely to say yes. But do bear in mind, that if/when you come to a point where you want to ‘staircase’ (buy a bigger share of your home), that it may well cost more as it’s highly likely that you will have increased the value of the property with your home improvement endeavours.
Are there any other costs or fees that I should be aware of?
Clearly, your deposit, mortgage and rent payments. In addition, if you’re looking to ‘staircase’, then other fees will be things like valuation fees, legal fees, mortgage lender fees and possibly stamp duty. Also worth considering – if you’re buying a new build, which shared ownership properties generally are, then they can involve costly service charges. Particularly if the property is adorned with fancy features such as lifts or a concierge service. Mind you, that would be a nice problem to have!
How much will a shared ownership mortgage cost me to arrange and what do I need to start the ball rolling?
At Cheshire Money, we charge a competitive fee for our services. This will be either a pre-agreed lump sum or a percentage of the total loan value. We act with the utmost integrity and all our costs will be clearly stated ahead of us starting to act on your behalf.
To start the ball rolling, all you need to know is your income (and your partner’s if you’re taking out a joint mortgage), along with the price of the property you want to buy.
What do I do now?
If this sounds like the avenue you’d like to go down, then do not hesitate to get in touch with any of our advisers here at Cheshire Money. Contact us to find out more and arrange a no-obligation chat at your convenience.