So you’ve decided a shared ownership property is for you.  Now you need to find a shared ownership mortgage. Simple right?  This article will cover how shared ownership works and discuss what you need to do to get a shared ownership mortgage.  We will also cover what happens if you would like to apply for a shared ownership mortgage but have a bad credit history.

How does shared ownership work?

Buying a shared ownership property is different to buying a home outright as the property will be part owned by you and part owned by a housing association. Put simply, shared ownership means that you are buying a share of a property, usually around 25-75%.  The remaining share will be owned by a housing association. Each month you pay a combination of mortgage and rent.   Many people find that their combined mortgage and rent for their shared ownership property is less than the rent they are currently paying.

You will have the option to purchase more of the property as your finances increase over time, meaning you could eventually own the property outright.  This is known as Staircasing.

Am I eligible for shared ownership?

The eligibility for shared ownership varies in countries in the UK.  Your combined household income must be less than £80,000 (in London, it’s less than £90,000).  Generally, it is for first-time buyers or those who used to own a home but can’t afford one now.

Many of the homes are purpose built new build properties.  So there is no need for large renovation costs or repairs. You will honestly be pleasantly surprised by what is on offer.

How do I get a shared ownership mortgage?

More high street lenders are now offering mortgages for shared ownership properties.  Most offer similar rates to their standard mortgage products. The deposits required are usually around 5-10% of the property share you are buying.  However as you are not buying 100% of the property, the amount you need to save on a deposit will be less.

Think about it:

If the total property value is £150,000 and you are buying a 50% share, you need a mortgage for £75,000.  

10% of £75,000 = £7,500 as opposed to 10% of £150,000 which is £15,000.  £7,500 is still a lot of money, but more achievable.

Don’t forget that there are other costs you need to consider when buying a property.  Your mortgage provider will request a valuation of the property to confirm that the home is worth the sale price.  This is normally between £500 – £1,000, sometimes more.

There are also legal costs which can be around £2,000. Finally, there can be stamp duty land tax (SDLT) to consider.  

Can I get a shared ownership mortgage with bad credit?

Having a poor credit history can make borrowing money more difficult.  When it comes to being approved for a mortgage, whether it is for shared ownership or buying a property outright, a bad credit rating will always make the process harder.

As a rule, banks are more reluctant to lend you money if your track record of previous borrowing is poor.  Things that can affect your credit rating are late credit card or loan repayments, county court judgments (CCJs) or regularly going over the agreed limits of your bank account or overdraft.  

It is always worth reviewing your credit history before entering the mortgage process to avoid any unnecessary delays or surprises. You can do this by visiting a site such as Experian.

So, you’ve received your credit history and it’s not great.  What now?

You may find that the ‘high street’ lenders are reluctant to offer you a shared ownership mortgage with bad credit.  However there are other providers that may consider you. You must be prepared though, the rates for your shared ownership mortgage could be higher than if you had a clean credit history.  This is because the lender’s exposure to risk is higher. For whatever reason, your credit history shows that you have not always been able to manage your finances. Although this is often through circumstance and not through choice, you must understand that the lender needs to protect themselves.

As always with mortgages it is important to understand that non-repayment in line with the terms of the mortgage can end up in the repossession of your home.  

It may all sound a bit serious, and well it is really.  But don’t be put off by ‘no’. There are some helpful resources online such as:

https://www.helptobuy.gov.uk/shared-ownership/

https://www.moneyadviceservice.org.uk/en/articles/how-much-can-you-afford-to-borrow

In the meantime, you can always have a look to see what is available in your area.  It helps when saving to have a vision of what it is you are saving for. There is plenty of inspiration on MovingSoon! Good luck.