If you can’t afford to buy a property outright, then shared ownership properties and shared ownership mortgages can potentially be a great solution. In this post, we take a look at how a shared ownership mortgage works as well as the associated pros and cons.
How Does Shared Ownership Work?
So, exactly how does shared ownership work? Shared ownership properties are sold through housing associations. If you can’t afford a property outright, you buy a share of the home and rent the rest. You buy a stake somewhere between 25% and 75% depending on how much money you have available and a shared ownership mortgage.
The remainder of the home is owned by the local housing association and the rent you pay can be up to 3% of the association’s share of the property’s value.
Not all lenders offer shared ownership mortgages so, if you’re looking for a shared ownership mortgage, be prepared to shop around.
How Does Shared Ownership Work: Eligibility
You’re eligible for shared ownership properties and shared ownership mortgages if your combined household income is £60,000 or less. The shared ownership mortgage and property scheme is slightly different to this in London. Here, your combined household income can be up to £71,000 if you want to buy either a one or two bedroom property, or up to £85,000 if you want to buy a larger property than this. However, this is soon changing…
As of April this year, local authorities will no longer be able to add their own rules to shared ownership property schemes (some currently insist that you live or work in the local area).
Anyone with a household income of under £80,000 outside London and £90,000 inside London will be able to buy a shared ownership property and this will become known as Help to Buy Ownership. Only military personnel will receive priority above others.
The Pros and Cons of a Shared Ownership Mortgage
Shared ownership properties are a great way of getting into the property market, with shared property mortgages an ideal solution. However, this doesn’t mean that they’re perfect for everyone. As such, it’s essential that you know the pros and cons of shared ownership properties:
- A shared ownership property and shared ownership mortgage allow you to get into the property market much quicker than if you were buying a property outright.
- Because you’re only renting a portion of the property’s value, it can be far cheaper than renting.
- You can sell your share of the property at any time. As a result, if the value of the property rises, you make a profit.
- You can buy additional shares from the local housing association as time passes.
- Shared ownership properties aren’t available everywhere, so you may have to sacrifice your preferred location.
- If the value of the property increases, the shares can be harder to buy as their price will also increase.
- You’ll normally have to pay service charges.
- Shared ownership mortgages can be difficult to get.
To conclude, shared ownership properties can be a great option for helping you get on the property ladder, as can shared ownership mortgages.
However, they’re not suitable for everyone, and not everybody is eligible. Consider the above carefully and make a decision that’s right for you.
Image courtesy of iStock.