Hi there, my name is Irene Maddox and I am a professional writer who specializes in finance and real estate. In this article, I will be discussing shared ownership mortgages and providing useful information for anyone who is considering this type of home ownership.
The Problem with Traditional Mortgages
For many people, buying a home can be a daunting task. Traditional mortgages often require a large down payment, good credit, and a stable income. This can make it difficult or even impossible for some people to qualify for a mortgage and become homeowners. Shared ownership mortgages offer a solution to this problem, allowing people to purchase a portion of a property and pay rent on the rest.
The Solution: Shared Ownership Mortgages
Shared ownership mortgages are a type of home ownership where you purchase a share of a property and pay rent on the remainder. This can be an affordable way to get on the property ladder, as you only need to pay a deposit on the share you are buying, rather than the full value of the property. You can then buy more shares in the property over time, eventually owning it outright.
How Does a Shared Ownership Mortgage Work?
With a shared ownership mortgage, you will typically need to put down a deposit of between 5% and 10% of the share you are buying. You will then take out a mortgage on the share you are purchasing and pay rent on the remainder. The rent will be set at a below-market rate, making it more affordable than renting a similar property on the open market.
Over time, you can buy more shares in the property, known as “staircasing”. This will increase the amount of equity you have in the property and reduce the amount of rent you need to pay. You can staircase until you own 100% of the property, at which point you will no longer need to pay rent.
It’s worth noting that shared ownership mortgages are only available on certain properties, such as new-build homes or properties that are being sold by housing associations. There may also be restrictions on who can apply, such as income limits or residency requirements.
What Are the Benefits of a Shared Ownership Mortgage?
There are several benefits to getting a shared ownership mortgage:
- Affordability: Shared ownership mortgages can be more affordable than traditional mortgages, as you only need to pay a deposit on the share you are buying.
- Flexibility: You can buy more shares in the property over time, allowing you to increase your equity and reduce the amount of rent you need to pay.
- Security: As a shared owner, you have the same rights and responsibilities as a full owner, giving you more security than renting.
What Are the Drawbacks of a Shared Ownership Mortgage?
While shared ownership mortgages can be a good option for some people, there are also some drawbacks to consider:
- Restrictions: Shared ownership mortgages are only available on certain properties and there may be restrictions on who can apply.
- Less Control: As a shared owner, you may have less control over the property than a full owner, as there may be rules about what you can and can’t do with the property.
- Staircasing Costs: Buying more shares in the property can be expensive, as you will need to pay for valuation fees, legal fees, and potentially stamp duty.
FAQs
- Q: Can I get a shared ownership mortgage if I have bad credit?
- A: It may be more difficult to get a shared ownership mortgage with bad credit, but it’s not impossible. You may need to put down a larger deposit and the interest rates may be higher.
- Q: How much rent will I need to pay on a shared ownership property?
- A: The rent will be set at a below-market rate and will depend on the percentage of the property that you don’t own. This will be outlined in your shared ownership agreement.
- Q: Can I sell my shared ownership property?
- A: Yes, you can sell your share of the property at any time. However, the housing association or developer that owns the remaining share will have the first option to buy it back.
- Q: Can I make improvements to my shared ownership property?
- A: It will depend on the terms of your shared ownership agreement. Some agreements may require you to get permission before making any changes to the property.
- Q: What happens if I can’t afford to buy more shares in the property?
- A: You can continue to rent the remaining share of the property for as long as you like. However, you won’t be able to buy any more shares and the rent may increase over time.
- Q: Can I get a shared ownership mortgage on an existing property?
- A: Shared ownership mortgages are typically only available on new-build homes or properties that are being sold by housing associations. However, some developers may offer shared ownership on existing properties.
- Q: What happens if the value of the property goes up?
- A: If the value of the property increases, the value of your share will also increase. This means that if you decide to sell your share, you may be able to make a profit. However, it’s worth noting that the housing association or developer that owns the remaining share may also benefit from the increase in value.
- Q: What happens if I want to move out of my shared ownership property?
- A: You can sell your share of the property at any time. However, the housing association or developer that owns the remaining share will have the first option to buy it back. If you decide to sell, you will need to get the property valued and find a buyer for your share.
The Pros of Shared Ownership Mortgages
Some of the pros of shared ownership mortgages include:
- Affordability
- Flexibility
- Security
Tips for Getting a Shared Ownership Mortgage
If you’re considering a shared ownership mortgage, here are some tips to help you get started:
- Research the available properties in your area
- Check if you meet the eligibility criteria
- Get a mortgage agreement in principle before making an offer
- Factor in the costs of staircasing when budgeting
- Read your shared ownership agreement carefully before signing
Summary
Shared ownership mortgages can be a great way to get on the property ladder, offering affordability, flexibility, and security. However, there are also some drawbacks to consider, such as restrictions on the type of properties available and the costs of staircasing. If you’re considering a shared ownership mortgage, be sure to do your research and read your agreement carefully before signing.