Shared Ownership Mortgage Advice
in Leamington Spa & Warwickshire
While home ownership is a goal for many, some individuals encounter challenges in entering the property market, often due to lower incomes or lower deposits. Shared Ownership serves as a gateway to home ownership for those who face difficulties saving towards a substantial deposit and securing mortgage approval. This option may help individuals purchase a larger property than they might have anticipated given the size of their available deposit.
What is a shared ownership mortgage?
A Shared Ownership mortgage is a Government initiative designed to help individuals in purchasing a ‘share’ of their chosen home - usually 25%, 50%, or 75% - rather than the entire property. This approach allows them to step onto the property ladder without needing to provide as substantial a deposit as required for the entire property. For instance, if buyers possess a £5,000 deposit, it would constitute 10% of a 25% share in a property valued at £200,000.
Another advantage of Shared Ownership is the reduced monthly mortgage payments. However, the buyer is required to pay rent, in addition to the mortgage payments, to the owners of the remaining share of the property, which is typically a Housing Association. This aspect must be factored into the buyer's monthly financial costs. Over time, the buyer gains the option to increase their share of ownership (known as ‘staircasing’) and eventually acquire the rented portion.
How is rent calculated under the shared ownership scheme?
The rent on a Shared Ownership property is generally established at approximately 3% of the remaining equity that hasn't been purchased, although the exact amount will vary between Housing Associations and will be provided to you upon enquiry.
So, if you own 50% of your home and the local authority or Housing Association owns the remaining 50%. If your property is valued at £200,000, then your annual rent might be 3% of £100,000, or £3,000, which works out at £250 per month rent, plus the mortgage repayment, plus any additional service charge.
Are shared ownership mortgages different to a standard mortgage?
A Shared Ownership mortgage has many similarities to a standard mortgage, however there are some differences. The most notable one being the deposit requirement, which is not calculated as a percentage of the entire property value, but rather based on the share you intend to purchase. For instance, if you are acquiring a 50% share in a property valued at £200,000 (assuming a 90% loan-to-value), your deposit would amount to £10,000. To purchase the entire property outright, the deposit would be double that, at £20,000.
Since Shared Ownership mortgages are designed to help individuals who may struggle to access the property market, there are several eligibility criteria that must be met.
You can purchase a home through Shared Ownership if both of the following are true:
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Your household income is £80,000 a year or less (£90,000 a year or less in London)
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You cannot afford all of the deposit and mortgage payments for a home that meets your needs
One of the following must also be true:
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You are a first-time buyer
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You used to own a home but cannot afford to buy one now
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You are forming a new household - for example, after a relationship breakdown
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You are an existing shared owner, and you want to move
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You own a home and want to move but cannot afford a new home that meets your needs
Another condition is that the property must be your primary residence and you cannot rent out any portion of it. The specific criteria may differ between local authorities and can evolve over time, so it's advisable to consult current guidelines specific to your location.
The Shared Ownership scheme includes the possibility of purchasing either new-build or pre-existing properties, provided they are owned by an approved qualifying body. Typically, these approved bodies consist of Housing Associations or local authorities.
What is 'staircasing'?
With a Shared Ownership mortgage, you can usually engage in 'staircasing', to incrementally increase your ownership share of the property. Many individuals initially purchase a smaller share, with the intention of increasing their ownership to 50%, 75%, or even full ownership in the future.
The portion of the property you can purchase may vary between Housing Associations, but the minimum share will typically be 25% and the maximum 75% before you buy the property entirely. There might be some flexibility in the levels of increments in between, so if you are considering purchasing a larger share of the property then it is best to check with your specific housing authority.
When purchasing additional shares in your property, be mindful that the cost of these shares will be at the current market price. Therefore, if you already own 25% and choose to purchase a further 25% share, then the price paid for the additional shares will be higher than your initial purchase, if the value of your property has risen. Equally, it will be cheaper if the property value has decreased.
How do I apply for the shared ownership scheme?
To purchase a property under the Shared Ownership scheme, you will firstly need to register your interest with your local Help to Buy agent via the government's official website.
The application form will prompt inquiries regarding your preferred location, in addition to delving into your individual circumstances, including savings, income and credit history.
Upon approval of your application, the agent will guide you towards properties aligning with your preferences. Following the identification of a suitable property, a reservation fee will need to be required.
Subsequently, you will need to undergo a comprehensive financial evaluation conducted by the appropriate housing association.
Upon completion of the assessment, you will receive information regarding the feasible share you can afford and the monthly rent payable. Should you choose to progress, your next step involves identifying a suitable mortgage lender for your share of the property.
Finding a shared ownership mortgage lender
Although you will have already undertaken a financial assessment with the housing association, you will experience similar evaluations from a mortgage lender.
The application process mirrors that of a standard mortgage application. You will need to answer a series to allow the lender to gain a comprehensive understanding of your financial capacity and individual circumstances. This information helps them in evaluating your application against their criteria.
In the case of shared ownership affordability evaluations, it's important to remember that the lender's assessment extends beyond assessing your ability to meet mortgage payments. They will also factor in the rent payable for the share owned by the housing association, along with any additional fees such as service charges.
Shared ownership mortgage advice
Your first step in obtaining a mortgage through the Shared Ownership scheme involves contacting the Help to Buy agent in your desired location. They will confirm local availability of properties and confirm if you meet the eligibility criteria for the scheme. Once accepted, you can proceed to make an offer and explore the mortgage options attainable to you.
At Intelligent Financial Advisory, our advisers possess a deep understanding of the mortgage market. We can pinpoint the ideal Shared Ownership mortgage product tailored to your unique circumstances, financial plan, and lifestyle, while optimising your borrowing capacity.
Securing a Shared Ownership mortgage presents an opportunity to pursue home ownership in a manageable manner. Interested to see what opportunities are available to you? Contact us today.
Looking for shared ownership mortgage advice in Leamington Spa & Warwickshire?
Jack Bewick offers tailored shared ownership mortgage advice specialising across Warwick, Leamington Spa, Kenilworth, Stratford upon Avon, Coventry & Warwickshire, Lutterworth & Leicestershire areas.
Offering expert independent mortgage advice on:
First Time Buyer Mortgages
Home Mover Mortgages
Remortgages
Buy To Let Mortgages
Limited Company Mortgages
Affordable Housing Mortgages (Shared Ownership)
Self Employed Mortgages
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