What do I Need to Know about Shared Ownership Mortgages?
About shared equity mortgages
The basic description of shared ownership is that when you buy a house with shared ownership you only buy part of the property, the rest you rent from a shared ownership agency, which can either be government-backed or it can be operated privately. The proportion of the property you buy depends on your financial situation and what the shared ownership scheme offers you. This means that you could buy between 25% and 75% of the property. Your mortgage will then cover your share of the property and you will then pay rent on the rest of the property.
When you are looking at buying a property in this way it is worth finding out all of the details about the rental part of the scheme as they can vary. The amount of rent you will pay will be up to 3% of the shared ownership agency’s share of the property. It is also worth noting that if you buy a property through this type of scheme that it will be as a leasehold property and not a freehold property. This entails an additional monthly service charge that you will have to pay on top of your rental payments.
Are you eligable?
Shared ownership schemes are not available to everyone so before you decide to go in for trying to buy a property in this way, make sure that you are eligible. There are a number of specific schemes around that specialise in new homes, key workers and social tenants, so check out all of the eligibility criteria. The criteria will vary between schemes. Most will have a cap on household income, usually around £60,000 per year, and then will also have additional criteria that can include job type, residency criteria, deposit size and type of property being bought. Each scheme will clearly state their criteria.
Consider the long term costs of shared equity mortgages
Due to the repayment terms on the equity loans the shared ownership scheme can, in the long term, end up being significantly more expensive than a traditional mortgage, so make sure you are aware of when interest will start being charged on the equity loan and how this will change over time as the interest rate can rise very quickly. Having a longer term plan for the next five to ten years will help you to be able to at least reduce your monthly rental payments by paying off chunks of your equity loan, known as staircasing, and there is also the possibility of increasing your mortgage to pay off the loan completely to consolidate your borrowing on your property and to get the benefit of remortgaging, but always remember that this will depend on your annual income.