Shared Ownership mortgages were introduced to help people get on to the property ladder with access to affordable housing. You buy a share of the property initially (e.g. 50%) and pay rent on the remainder until you are in a position to increase your percentage shareholding.
The deposit you need to find for this type of purchase is usually smaller than a standard purchase which makes shared ownership attractive to first time buyers.
Today we're going to talk about Shared Ownership Mortgages. Shared Ownership has been around for quite a long time, who would your typical type of customer be for a Shared Ownership purchase?
Typically, people who are wanting to get onto the property ladder but may be struggling, either income or deposit wise or whatever. The scheme provides people with an easy or more cost-effective way into the market.
Over recent years, let's say less than 10, maybe even 20 years, we've seen property prices generally get out of the reach of the first time buyer.
That's right, and that’s why this scheme can be extremely helpful. For example, it allows younger families to buy the sort of house that they couldn't afford on the open market.
It also gives them the accommodations that they need to house their family, especially if they've got young children. If you decided not to use the scheme and tried to buy the same property on the open market, it would be very hard to afford the straight up cost of the property.
You may only be able to only afford a much smaller house.
I suppose that's because over the years, they haven't built enough properties in the UK. Supply and demand in the market has forced property prices up, yet on the other hand, salaries have never really risen at the same growth speed.
That's right yes, and also a lot of traditional social housing, like council housing has been sold off, so there's not as much of them available.
Also, housing associations who run the shared ownership schemes largely, have gone somewhere to filling that gap.
A lot of these proprieties have been bought up and the government have not really built new council houses to replace them over the years, and that's another reason why housing prices have shot up.
In terms of first time buyers who live in parts of the country where property prices are high, is this a good root into the market for them?
If you think about somewhere like London for example, there's a large amount of people who are not necessarily on a salary that would enable them to pay London’s property prices.
In this situation, a Shared Ownership mortgage will be an ideal halfway house solution for a lot of people.
If you were interested in taking out a shared ownership mortgage then, what would you do first? Would you try and get your mortgage in place first?
Would you contact a housing association first? What would be the running order for someone interested in this?
I would always say talk to a mortgage advisor. Firstly, you need to know whether you can actually borrow anything at all, if so, you need to find out what your borrowing capacity is.
Also keep an eye on what the local housing associations are doing and what sort of prices they're offering. A mortgage advisor will need to take this information into account so they can roughly work out what rent you're going to be paying on the share that you don't own.
There is always a balance between making sure that it is affordable and also making sure that there's property available. I'd always start with a mortgage advisor just to make sure that you can actually borrow enough to do what you ideally want to do.
These types of mortgage can be more difficult to obtain, especially if you've got bad credit as well.
You can find these types of properties by contacting the housing association, or just looking on Rightmove and Zoopla, shared ownership properties are advertised on there too.
In your experience of working with shared ownership mortgages, what typical percentage do people who enter the market do it at, is it 25%?
I would probably say more commonly 50%. Although, it can be anything between 25%-75%. There are two types of lenders who offer Shared Ownership mortgages.
Ones who are looking for you to become the 100% owner at some point in the future and some that want you to only own a share and never become a full owner. This is why it’s important to know what their products and what they are offering.
When you want to become the full owner and want to increase your share in the property, it’s known as staircasing.
Is that what commonly happen amongst Shared Ownership Mortgage owners? Do they want to become the 100% owner of the property?
Ideally, as time progresses, it’s common for people to want to have full ownership of the property.
Usually, customers have to put down a small deposit on these types of properties. This is because they're only buying a share which may only be 10%, 5% or sometimes 0% of the share that they're buying.
For the people who are struggling, this scheme is a great way to get onto the property ladder. If you're looking for Shared Ownership mortgage advice, please do not hesitate to get in touch as we'll be happy to help you.