What is shared ownership?

Houses are expensive and sometimes can see out of reach simply because of that. When you are looking at house prices in your area upwards of £230,000 and your salary is around the national average of £28,677 for full-time employees, it can just seem ridiculous – after all who is going to offer you a mortgage eight or more times your salary?

Shared ownership offers you a way onto the elusive property ladder, enabling you to buy part of a property in collaboration with a housing association – you buy a quarter, they buy three-quarters and you pay them rent for their part. Plus, though a process known as staircasing you can increase your share each year until you own the whole thing.

A quarter of a property is a lot easier to afford than the whole thing.

Who is shared ownership for?

Aimed at first-time buyers on combined salaries under £80,000 (£90k if in London), shared ownership deals are normally also for new builds, meaning that not only do you get your feet on that first rung, but you do it in a house that is unlikely to have constant maintenance problems.

You have to want to buy the property to live in and you won’t be able to rent out any part of it, have the permanent right to live in the UK and be over 18 – and that’s it.

How does shared ownership work?

Remember that £230,000 house? Let’s start there.

With a salary of £28,677 you would be looking at a mortgage that has a maximum limit of £115,000. Conveniently, that’s half the value of the house. With shared ownership you can typically buy 25%, 50% or 75% of the property – a half-sized share is perfect.

You will need a deposit that’s at least 5% of the size of your mortgage – so that’s £5,750. More is better, so if you can stretch to £11,500 (10%) that’s great, but if not then there are plenty of lenders who will talk to you.

Once you get your mortgage (more on that later) you will be able to buy a 50% share in the property, and the housing association will buy the other 50%. You’ll have your monthly mortgage repayments to make (around £575 a month) and you will rent the other half – this will cost approximately 3% of the value of the housing association’s share per year £3,450. That’s £287.50 a month.

In total, your mortgage-plus-rent will total around £862.50 per month.

Of course, a lot will depend on your mortgage deal, and at The Mortgage Hut we’d help you get the very best shared ownership mortgage available in the UK, but the numbers given here are a good indictor.

Staircasing – owning the whole property
Depending on your shared ownership deal which will be different depending on your housing association, you will have the option to improve your share a when you can afford to. Some deals will let you go all the way to 100% (which is really what you are after), while other’s will have a maximum cap (typically 80%) so that the housing association keep some part of the property.

You will be entitled to buy 10% or more in shares as time goes on until you own the whole property. These will be calculated based on the current market value of the property, so if it goes up in value, future shares are going to cost more than ones bought earlier.

In the example given, each 10% share will cost £23,000 and can be paid for by saving, or by extending your mortgage through discussion with the lender.

Your rent will drop as your shares increase as the housing association owns a smaller and smaller percentage.

Your credit history – the potential stumbling block to your shared ownership mortgage

Many guides to buying property – shared ownership included - will include a line that goes something along the lines of ‘you will need to have a good credit history in order to apply’. Don’t be worried – not only is the term very misleading, but the sentiment behind it is also a little wrong.

No matter your credit history, a little time and effort can get you that mortgage you need.

Credit history vs. affordability
Your credit score is talked about a lot, but what is often kept a little secret is the idea of affordability. To a mortgage lender, credit score is important, for sure, but affordability is king.

Affordability is the amount of disposable income you have each month. You can think of it as income minus outgoings. If you get £2,000 in to your bank account and your regular outgoings come to £1,500 a month and you tend to burn £100 each weekend, then your affordability is low. However, if you keep your direct debits down to £1,000 and tend to live frugally the rest of the time, then your affordability is great.

Of course, affordability is connected to your credit history and people with good affordability tend to pay their bills on time, but a CCJ a couple of years ago and good affordability today is much more acceptable to a lender than no black marks on your credit history but next to no disposable income.

Knowing your credit history
There’s no point panicking about nothing. Make sure you actually know your credit report by using the online services offered by the credit reference agencies – Experian, TransUnion and Equifax. You can access your credit report whenever you want (it’s updated monthly) and keep a good eye on it. This way you get no surprises.

Shared ownership mortgages with bad credit
First of all, remember that shared ownership is there to help you get on the property ladder, not to make it hard!

At The Mortgage Hut we work with a huge range of lenders to get you the best deals – this also means we know the providers that are happier to work with higher risk customers. Our bad credit specialists are experts in finding the right deal for worried customers who are suffering with poor credit history. We can help you get the mortgage you need!

Here are the steps to getting that shared ownership mortgage:

Immediately stop spending frivolously! This will:
  • Improve your affordability
  • Give you some spare cash to pay back any creditors causing problems
  • Allow you to save more to your deposit

Be patient. Time is key as the further back your bad credit flags are, the better it is for you.
  • Don’t compound mistakes by missing payments or avoiding debts
  • Save for your deposit
  • Put three months between your and your last black mark on your credit report

Stay away from new credit.
  • Avoid having unnecessary hard credit searches on your file
  • Avoid temptation to spend

Talk to The Mortgage Hut. We can:
  • Find a mortgage provider willing to look at your application
  • Give you further advice to improve your credit score
  • Help you understand the size of a mortgage you could get
  • Help you set goals

The real impact of a poor credit score on your mortgage application
With our help you will be able to get a mortgage in time, but you need to be aware of how your bad credit may affect your mortgage:
  • Larger deposit – lenders will be more willing to lend if you offer them more deposit, even with bad credit. With shared ownership you only need to cover the mortgage for the share in question, so even a 10% or 15% deposit should be reasonably affordable.
  • Higher rates – we do our best to get you the best deal on interest rates possible, but bad credit mortgages tend to have slightly higher rates than their counterparts. Be prepared to pay a little more for your initial mortgage but don’t worry – you can always renegotiate or remortgage later when your credit score is repaired.
  • Rejection – yes, even with our help you may suffer a few rejections. Don’t worry, we’ll minimise that and find the right lender!

Getting a mortgage for shared ownership with The Mortgage Hut

You’ve saved up for a deposit, you’ve cleaned up your credit history and improved affordability, you know the house you want and have spoken to the housing association to ensure you are eligible for shared ownership – it’s time to give us a call.

Our experts on shared ownership at The Mortgage Hut will work with you to speed your application through, often with a mortgage in principle agreed within hours. From then on, it’s plain sailing!

For more information, fill in our contact form or call us today!

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