Shared Ownership Mortgages Explained
Shared ownership mortgages are considered by many people to be the best way for first time buyers to get onto the property ladder.
In recent times, with house prices rising continuously, more and more people have been turning to shared ownership schemes.
These schemes are similar to the government's Help to Buy plans and are aimed at helping those on lower incomes fund the purchase of their first property.
What are shared ownership plans?
Homes that are offered on shared ownership schemes are supplied through housing associations. These schemes operate by allowing the new buyers a share of the property that they take out a shared ownership mortgage on.
Typically the share of the property you’ll own stands somewhere between 25% and 75%. Beyond this total, the person taking out the shared ownership mortgage will pay rent on the outstanding amount.
The only people who are eligible for these kinds of schemes are first time buyers or anybody who used to own a property but can no longer afford to purchase one. These types of plans can only be offered to people that are on incomes lower than £60,000 per annum.
In order to purchase a share of the property you will be required to take out a mortgage. However with shared ownership mortgages the amount that you are required to put forward as a deposit is normally much lower than with a normal mortgage.
With a normal mortgage you would have to pay a deposit that is worth 10-20% of the value of the loan. This is not the case with shared ownership mortgages, on these types of schemes a deposit typically stands at around 5% of the total of the loan.
Advantages and Disadvantages of Shared Ownership Mortgages
The appeal of shared ownership mortgages is the money saving aspect of the process. It can be a great way to get into the housing market for a reduced sum of money.
The fact that you only need a deposit of 5% means that you won't have to put up anywhere near as much money as you would under normal circumstances. This means that if you were to take out a mortgage of £150,000, you would only need a deposit of £7,500.
This benefit is exacerbated by the fact that you can purchase a smaller share in the property than the 100% you would normally be required to buy. This means that if you took out a mortgage worth £150,000 and you decided to buy 50% of the property, you would only need to put up a deposit of £3,750.
One thing you may want to consider when taking out one of these mortgages is how large a share of the property you would like. If you have the means to pay for 75% of the property, it could be a good idea to do so. However remember to factor in how much you will need to pay for the additional rent that you will need to pay.
You should also remember that if you want to increase your share of the house, you will have to pay to have the home valued once again. This means that if the house prices in your area have gone up, you will need to pay more than you did for the remaining share than you did initially.
One downside for purchasing a property through a shared ownership mortgage comes from the fact that you don't own the entire property yourself. This is because you may find it hard to rent out your property in the event of you wanting to move to a new place. It depends on the rules that are set by your local housing association but you will want to find out before you take out a shared ownership mortgage.
This means that if you are not financially capable of increasing your share in the property to 100%, you may find that you are forced to stay in the same house for longer than you would wish.
That being said, if you are confident that you will be able to earn or save enough to increase your share to 100%, then you have no need to worry about these eventualities.