In previous articles, we have gone over some of the most common types of mortgages available to aspiring homeowners in the UK. We have also discussed some of the more unique variations, which can help brokers grow their business by supporting more complex customer cases. These include those looking to arrange a mortgage on new build homes or those struggling to save towards their deposits and need intervention from the 95% mortgage guarantee scheme. In this article, we will continue this trend as we look to explain what a shared ownership mortgage is. We will also examine how this type of mortgage can help your customers who might be holding off on starting their journey to becoming a homeowner because of concerns about saving for the deposit.
What is a shared ownership mortgage and how does it work?
A shared ownership mortgage enables an aspiring homeowner to purchase a property, even if they are unable to afford the initial deposit or subsequent mortgage repayments. As a compromise, they are able to purchase a share of the property, rather than the whole entity. Their repayments will then be put towards their ‘share’ of the property while rent is paid on the remainder. Shared ownership mortgages typically allow a buyer to purchase anywhere from 10% to 75% of the property, with any remaining share being split between a housing association or landlord. So, if your customers are expressing concerns about their ability to save towards a standard 10% to 20% deposit, then bringing up a shared ownership mortgage in your discussions could be the solution to their problems. With this type of mortgage, your customers will only be required to put down a deposit worth 5% of the property value, which can go a long way in helping them save for any unforeseen events further down the line.
Who can get a shared ownership mortgage?
While a shared ownership mortgage may not be for everyone, it is not exclusively for first-time buyers. Instead, it is a particularly flexible mortgage type which is able to meet the needs of a variety of customers, who find themselves in a variety of financial circumstances. Below is a list of categories, which some of your customers may fall under, that might be able to benefit from a shared ownership scheme:
- First-time buyers
- Homeowners with an income of less than £80,000 (or less than £90,000 in London)
- Former homeowners currently struggling to afford a new property
- People who already live in a shared ownership property
- People who are renting a council or housing association property
Advantages and disadvantages of a shared ownership mortgage
Like with any conversations you have with your customers, it is imperative that you make it clear just what options they have available when it comes to getting a mortgage arranged on their behalf. So, if any of your customers fit within one of the above categories and you are considering making them aware of what a shared ownership mortgage is, it’s important both you and they know what the benefits as well as the potential drawbacks are of this mortgage type.
Advantages of a shared ownership mortgage
- Requires a minimal deposit – This type of mortgage only requires a deposit worth around 5% of the property value to be met, which means customers won’t have to delay actually applying for a mortgage since they can save what they need for a deposit sooner.
- Full property can be purchased at a later date – Even though the initial agreement only allows a customer to purchase a small stake in their property, they may be able to buy the remaining percentage of the home.
- More stable than rental agreements – Since shared ownership strikes a balance between the definiteness of owning a home and the openness, this mortgage type offers stability for customers where other purchase agreements may not.
- Shared ownership can be sold at any time – Even if your customer does not have full ownership of their property, they are free to sell their share whenever they choose.
There are differences in rules depending on whether your customer lives in Northern Ireland, Scotland or Wales. You can find out more here.
Disadvantages of a shared ownership mortgage
- Limited panel of lenders offering shared ownership mortgages – As you would imagine, not every lender will offer this sort of mortgage type so you and your customers will have limited options over who to arrange a shared ownership mortgage with.
- Communal charges may also be incurred – If your customer is looking to purchase a flat, they may be required to pay maintenance chargers for communal areas.
- Stamp duty still must be paid – There are a number of hidden costs that must be paid when a customer buys a new home, and that continues to be the case even when entering into a shared ownership mortgage.
- Housing associations may limit who the property can be sold to – When customers look to sell their home, they may be restricted in who they are able to sell to since they will need authorisation from the housing association or landlord with whom they share the property.
Other affordable home ownership schemes
Affordable home ownership schemes offer great assistance to your customers who are in need of extra support when it comes to looking to rent or buy in the current housing market. Also referred to as ‘low-cost home ownership’, these schemes provide aspiring homeowners and movers financial support and benefits from the UK government so that they can better deal with some of the barriers to entry in looking to buy a home. In addition to the shared ownership mortgage scheme, we have already discussed here, there are also the equity loan and new build mortgage schemes available to your customers which could provide some much-needed support, so make sure you take the time to get to grips with these projects.
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