If you’re struggling to find the perfect home for you that’s in your budget, then you may benefit from choosing a shared ownership mortgage.
A shared ownership mortgage is an option for those who may not be able to afford the cost of a full deposit but want to get onto the property ladder. But what exactly is a shared ownership mortgage? And is it worth getting one? Keep reading to learn more about shared ownership mortgages, including the pros and cons.
What Is A Shared Ownership Mortgage?
A shared ownership mortgage is a type of mortgage that allows you to get your first step on the property ladder without having to cover the whole deposit. If you’re a first-time buyer or you don’t already own a property, then you can purchase shares in a property instead of purchasing the whole property.
You may have heard shared ownership mortgages being referred to as ‘party buy/ part rent’ – this is because you’ll pay a mortgage on the share that you own, and then rent on the rest to the housing association managing the property.
Because you’ll only pay for a share of the home (typically between 25% and 75%), the deposit will be significantly lower than a standard deposit. The rent will also be below market value, so it’s a great way to get on the property ladder without breaking the bank.
However, to be eligible for a shared ownership mortgage, you must not already own a property, or you previously owned a home but can’t afford to buy anymore. You’re also eligible for a shared ownership mortgage if your household earns less than £80,000 per year – however, this limit rises to £90,000 in London.
Regardless of where you live in the UK, you should be able to find the right shared ownership mortgage for you. If you live in or around Liverpool, we can help you when it comes to finding the perfect shared ownership mortgage.
Pros and Cons Of Shared Ownership Mortgages
There are plenty of benefits to acquiring a shared ownership mortgage, but there are also some cons. Whether it’s worth opting for shared ownership depends on your circumstances – more specifically, your financial situation.
Shared ownership mortgages are great at getting you on the property ladder without having to pay a full mortgage and for a full deposit. You’ll be an owner-occupier, which is more stable and secure than simply renting a home.
If you’re on a lower wage, shared ownership mortgages are more accessible and inclusive. It’s a great way to break out of the renting cycle and get you on the first step to owning your home.
However, you’re not bound to the property once you’ve opted for a shared ownership mortgage – you can sell the shares you own whenever you like.
You can also end up buying the remaining shares – simply arrange it with your housing association to get the ball rolling. When you staircase to 100%, you won’t need to pay rent anymore – you’ll be paying the mortgage as well as ground rent and service charges (if applicable).
As well as a long list of pros, there are some drawbacks to shared ownership mortgages. One of the main drawbacks is that despite only paying part of the mortgage, you’ll still need to pay 100% of the ground rent and service charges on your property, despite how low your share is.
If you own an 80% share of the property or more, then you’ll need to pay Stamp Duty on the whole value of the property. However, this is only relevant if the property is valued at more than £125,000.
You’ll be able to decorate the property (e.g change the blinds, paint the walls etc), but you may face restrictions as to what further home improvements you may want to do. If you plan on completing any structural work on the home, you might need to ask permission from your housing provider.
You’ll only be able to acquire a shared ownership mortgage on a leasehold basis at first – however, it may become freehold if you purchase the remaining shares.
Leased ownership is essentially a long tenancy where you have a right to occupy the property for longer periods – your tenancy will be fixed at the beginning and you’ll have a chance to buy during your fixed tenancy.
And then there’s the fact that not all lenders have shared ownership options – but you’ll find that most of them do.