There are a variety of different mortgages to choose from, each with their own benefits. If you’re struggling with a deposit, then a shared ownership mortgage may be just the thing for you.

But what exactly is a shared ownership mortgage? And how do you apply for a shared ownership home?

If you’re considering applying for a shared ownership home or simply want to brush up on the facts, we’ve got you covered.

Read on to learn more about shared ownership mortgages, including the pros and cons, and how you can apply.

What Is A Shared Ownership Mortgage?

Shared ownership is a form of mortgage that differs slightly from a traditional residential mortgage – but still helps you get your foot on the property ladder.

However, with shared ownership mortgages, you aren’t required to pay a full deposit as you only own a percentage of the property.

With a shared ownership mortgage, you’ll own shares of the property as opposed to the whole property. Typically, you’ll start by owning between 25% and 75% of the property – meaning that the deposit will be significantly lower than a regular deposit. The lower the share you own, the lower the deposit will be.

The shared ownership scheme is also referred to as part buy/ part rent – this is because you only pay the mortgage on the share of the property that you own, and then pay rent on the remaining share.

The rent will also be below market value, making shared ownership mortgages a great way to acquire your first property without breaking the bank.

If you get into a position where you can buy more shares, you should be able to do so depending on the terms of your lease. This is called staircasing – typically increasing your shares by 10% or more each time.

Pros and Cons Of Shared Ownership Homes

Like all types of mortgages, shared ownership mortgages have their own pros and cons. The benefits of ownership mortgages depend entirely on your circumstances – the best choice for you may be completely different to somebody else.

Here are some of the pros and cons of applying for a shared ownership home.

Pros:

One of the main advantages of shared ownership homes is that you can get on the property ladder without having to fork out for a whole deposit and mortgage or full rent.

Shared ownership mortgages make you an owner-occupier, giving you much more stability than simply renting a home – after all, you own part of it.

Shared ownership mortgages are also more inclusive and accessible, and can help renters secure a property without breaking the bank.

You also have the option to sell your shares of the property at a later date, or to buy more shares (staircasing), or buy the remaining shares giving you full ownership – however, this depends on your lease terms. Once you own all property shares, you won’t need to pay rent anymore – however, you’ll be paying a full mortgage.

Cons:

As well as a variety of advantages, there are some drawbacks to shared ownership mortgages. One of the main cons of shared ownership mortgages is that you’ll still need to pay 100% ground rent and service charge on the property when applicable, even if you only own a small share.

If you own over 80% of the property shares, then you’ll be required to pay Stamp Duty on the whole property value. This is only applicable if the property is valued at over £125,000.

If you own shares of a shared ownership property, then you’ll need to ask permission from your housing provider to undergo structural work on your home – however, you’ll be able to decorate the property however you please.

Another disadvantage of shared ownership mortgages is that you’ll acquire it on a leasehold basis at first, but can become freehold if you purchase the remaining shares.

Leased ownership is essentially a long tenancy that’s fixed at the beginning, but gives you a chance to make it permanent by buying the remaining shares.

The housing association may not give you full control over who you sell to, which is another disadvantage to shared ownership homes. You may also have to pay maintenance charges for communal areas, but this is only relevant with certain properties.

How Do I Apply For A Shared Ownership Mortgage?

There are certain eligibility criteria that you need to be aware of before applying for shared ownership mortgages.

Firstly, you must not already own a property – however, you can have previously owned a home but can’t afford to buy anymore.

Your household must earn less than £80,000 per year – but naturally, the limit rises to £90,000 in London as house prices are typically more expensive.

To get started, it’s best to liaise with a mortgage broker to discuss your options and ensure that you are mortgage ready and have the correct documentation you need to apply for a shared ownership mortgage.

You’ll be asked questions about your savings, income, credit history, and your desired location. The amount that you’ll be able to borrow typically depends on the cost of the mortgage, the cost of rent, ground rent, service charges, and your household’s income.

Not all properties are shared ownership properties – to find the best shared ownership mortgage, it’s always best to liaise with a mortgage advisor.

If you’re looking for properties in Liverpool and want to take advantage of the best shared ownership mortgage deals, contact us today – visit our contact page here.