A shared ownership mortgage, or shared equity, refers to buying a percentage of property under a mortgage and paying the rest to a traditional housing association or local authority. Some building societies are now starting to offer the shared ownership mortgage.
How Shared Ownership Works
The buyer will be offered a portion of the property that is usually between 25% and 75%. The buyer will then obtain a shared-ownership mortgage on this amount. They may pay rent on the portion of the property they do not purchase. The payment of rent is for the right to use the non purchased portion. However, rent is not always an option. Instead, the vendor may contract the right to a certain portion of future profits from the sale of the property. These mortgages are usually locally-based, but some building societies now offer shared ownership mortgages. If you can't find an appropriate shared ownership mortgage in your area, ask a broker or high street lender for help.
Advantages
By taking out a shared ownership mortgage, it may allow you to buy a property that you normally thought you could not afford. As well, shared ownership mortgages benefit buyers on limited incomes. They often allow buyers to increase their investment over time and gradually buy a stake in the property.
Available Mortgages
Mortgages available on shared ownership are to some extent limited. Some lenders feel that shared ownership is too risky. Having a third party brought into the deal might make them more cautious. However, as house prices have increased, more people are looking at shared ownership. There are now some lenders that will offer 100% mortgages on shared ownership deals. You will need to select a mortgage that is not only suitable to your type of purchase, but also one that fits in with your financial position. Mortgages to consider include repayment mortgages, variable rate mortgages, fixed rate mortgages, and discounted rate mortgages. Shared ownership discount mortgages are usually not available to first time buyers.
Considerations
Once a shared mortgage has been offered, you will need to give the Social Landlord the name of your solicitor. A draft of the agreement will be sent to your solicitor for approval. Your solicitor will perform local authority searches and research the property title. The Social Landlord will tell you how much rent and service charge you will pay on the unsold share. You will have to buy fire, contents, and damage insurance. Some housing associations include this insurance in their service charge. You may want to consider life insurance and payment protection insurance. Should anything happen to you, or you were to lose your job, your dependents would receive some income and the mortgage would be paid off. The availability of shared mortgages is fairly limited, so it may take some perseverance to buy a property using this type of mortgage. It would be beneficial to consult with an experienced shared mortgage advisor.
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