If you’re considering buying a house, you may have come across the term ‘shared ownership’. If you don’t have the funds for a full deposit, this is a very appealing option.
However, shared ownership mortgages aren’t for everyone. There are certain eligibility criteria when it comes to applying for a shared ownership mortgage, such as age, income, and current ownership status.
Keep reading to learn all about shared ownership mortgages, including the eligibility criteria, and how to get the ball rolling with a shared ownership mortgage.
What Is A Shared Ownership Mortgage?
A shared ownership mortgage may be a great option for you if you’re a first-time buyer or you’re not in a financial position to purchase a home in its entirety. It’s a way for you to take your first step onto the property ladder without having to pay for a full deposit.
With a shared ownership mortgage, you purchase a share of the home. You’ll begin by owning between 25% and 75% of the property – but further down the line, you’ll have the opportunity to purchase more shares of the home and eventually own the whole property. You’ll typically increase your shares by around 10% more each time. This is known as staircasing.
Once you own 100%, you’ll no longer be required to pay rent on the property – just the mortgage. However, you may also be required to pay service charges as well as ground rent.
As you’re only purchasing a share of the home, the cost of the deposit will be notably lower, making it a more accessible way to get on the property ladder if you have a lower income. As expected, the higher the share you purchase, the higher the deposit will be.
You may also have heard shared ownership mortgages referred to as ‘part buy/ part rent’. This is because with shared ownership mortgages, you pay the mortgage on the share of the property that you own, and pay rent on the remainder. However, rent will be below market value, making it a more affordable option than most other forms of mortgage.
Rent paid on the shares that you don’t own goes to a housing association. Because you only need a mortgage for the share that you own, then the deposit will be a lot lower.
Am I Eligible For A Shared Ownership Mortgage?
As with any mortgage, there are certain eligibility requirements that you must meet in order to be accepted for a shared ownership mortgage.
One of the most basic requirements for a shared ownership mortgage is that you are a British, EU, or EEA citizen, or you have the right to live in the UK. You must also be at least 18 years old, which is the same for any mortgage in the UK.
Your employment can also determine whether you’re eligible for a shared ownership mortgage. In order to be accepted, you must either:
- Employed – have a permanent contract of employment (not probationary)
- Self-employed – have a minimum of three years of accounts
- Income – must be able to afford the property you wish to buy
It’s also important that you have enough savings to cover the mortgage deposit, as well as a set amount for other fees such as legal fees, mortgage fees, and stamp duty (where relevant).
If you’re outside of London, you must earn less than £80,000 to be eligible for a shared ownership mortgage. However, if you’re in London, then the limit goes up to £90,000.
You must also either be a first-time buyer, or you must be in the process of selling your current home. Most people opt for a shared ownership mortgage as they can’t afford a regular mortgage on the open market, so if you can, then you shouldn’t be applying for a shared ownership mortgage.
Another requirement is that you demonstrate that you’re not in rent arrears or mortgage arrears and that you have a good credit history. If you have a CCJ, for example, this may get in the way of the mortgage process.
As with any mortgage, you’ll need to afford the deposit. However, the deposit for shared ownership homes is lower than regular deposits as you’re only paying for a percentage of the property.
How Do I Get A Shared Ownership Mortgage?
At LTC Mortgages, we can help you throughout your home buying process, regardless of whether you’re looking for a shared ownership mortgage, a buy-to-let mortgage, you’re a first-time buyer, or you simply want advice on buying a home.
Buying a home can be difficult, but we can find you the best rates and streamline the process for you, taking a weight off your shoulders.
Liam Coker is a highly skilled mortgage and protection specialist who delivers excellent customer service. His knowledge of the mortgage industry is key to finding the correct solution for people’s specific needs.