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A shared ownership mortgage is part of a government scheme, when you part-buy and part-rent a house through shared ownership with a housing association. The aim is to assist lower income households and first time buyers to get on the property ladder.
You buy a share of a home from the housing association through your local Help to Buy agent, and pay rent on the remainder. The share of the property you buy from the Housing Association will vary between 25% and 75% and it is this part you will mortgage.
Further down the line, you may be able to buy a larger share of the property based on its value. This is a system called staircasing, where you can purchase chunks of the rented part of your home until you own the entirety. Should you wish to sell the property, you will need to achieve 100% ownership. If you want to sell before that, the housing association can opt to purchase the property back before you sell to another buyer. They have this option for 21 years after the property purchase.
You may also need to request permission from the housing association before starting certain improvements under the terms of the lease. Unfortunately, even if you own just a 25% share of the property, you still have all the responsibility for the upkeep of your home. The Housing Association is not liable or responsible for any of the repairs or maintenance associated with home ownership.
Whether you can have a pet will also be determined by the Housing Association’s rules; it’s not unusual to have to request permission for a dog or a cat. With a shared ownership flat, rather than a house, pets may not be allowed at all.
Who is eligible for a shared ownership mortgage?
To be eligible to apply for a shared ownership mortgage you have to have a combined income of under £80,000 out of London or under £90,000 in London. The other criteria mean that you must:
– be a first time buyer
– live in the property and not rent it out
– have the permanent right to live in the UK
– prove that you are not behind in payments for rent or a mortgage
When you compare shared ownership mortgages with other options, there is the added benefit that a shared ownership mortgage may require less of a deposit, typically 5-10% of the value of the share you are purchasing, rather than the full value of the property. The rental cost of the scheme will also depend on the property value overall and the size of the share you end up buying.
One of the most important loans you will ever apply for is a mortgage. At Bright Loans, we appreciate that finding a mortgage, especially if you have never needed one before, can feel like a daunting prospect. When you’re trying to compare shared ownership mortgages, there are a few types of mortgages available on the market:
Variable rate/Standard variable rate: these mortgages have a rate set by the mortgage lender. It is also the rate most borrowers’ mortgage will revert to when their mortgage term comes to the end of the initial fixed or tracker rate.
Fixed rate: a fixed rate mortgage has its interest rate set for an agreed period of time, typically two, three, five or ten years.
Tracker mortgage: the interest rate on a tracker mortgage will be given a percentage (at the moment above) the Bank of England base rate for a fixed period of time. The rate is variable as it changes in line with the Bank of England base rate.
Discount mortgage: this is a variable rate mortgage which offers a discount below the lender’s standard variable rate for a set term, usually two to five years.
Interest only: lenders are typically only happy to consider an interest only mortgage if you have at least a 50% deposit. You will also need to agree to a suitable repayment plan. This type of mortgage is typically unavailable on Shared Ownership sales.
Choosing a mortgage is a personal choice and will very much depend on your own personal financial situation and how comfortable you are with risk. There are a few things to consider when making a decision. For example, you may prefer to opt for a fixed rate if:
Whereas you might prefer the variable rate option if:
How to find the best shared ownership mortgage
At Bright Loans, we have a really quick and simple tool to help you carry out a shared ownership mortgages comparison, meaning you can easily compare quotes from different lenders, allowing you to choose the best loan for you.