However, Shared Ownership mortgages shouldn’t be viewed as the holy grail of securing a mortgage deal. There are a number of areas to consider and risks involved, before you make the plunge:
For those who meet the eligibility of the Shared Ownership mortgage criteria, they are only buying a stake in a property (somewhere between 25%-75%), and renting the rest. This means that unless further shares are bought in the property, through a process known as ‘staircasing’ (find out more here), you won’t actually own the property. Instead, you are a tenant for the term of the lease. Therefore, you will be liable on a range of grounds a normal tenant fulfills. Ultimately, if you breach your contract, you could lose the property altogether.
Despite only owning a percentage of the property, you will be responsible for 100% of the service charges. This includes any valuation fees, stamp duty and general mortgage fees, as well as any legal expenses. This isn’t any different from any other mortgage products, but don’t be fooled into thinking the costs may be reduced or split.
You may have secured a Shared Ownership mortgage deal that suits you, with discounted rates and preferable repayment options, but the properties which are available on a Shared Ownership mortgage are usually leasehold properties with service charges attached and maintenance fees on top. The owner of the building is not obliged to carry out repair work, nor can you enforce works if they’re not carried out. With older style buildings, this can be an issue. Leaking roofs, structural issues and general wear and tear can become costly.
Shared Ownership mortgages can come with limitations. If you planned on renting your property out, you may want to plan again. In the majority of cases, sub-letting is not an option. You may not necessarily have freedom of reign, when it comes to decorating or other alterations either.
Once again, this is not as straightforward as selling a typical property on a normal mortgage. The ‘Right of First Refusal’ will fall to the housing provider, giving them priority, if you should choose to sell, even if you have purchased 100% of the property through staircasing. This is to allow other people on the housing association waiting list who are unable to buy on the open market. If your housing provider cannot find a buyer, you can then market your shares using an estate agent or other traditional methods. Yet, you will still need to find a buyer who meets the shared ownership criteria. This could reduce the size of your market, in return.
Although this is a government backed scheme, don’t expect added protection. With a low rental and monthly repayment charge to begin with, these prices will only rise. The rent you pay on the part of the property not owned by you can be actioned by the housing provider to repossess the property, should you fall into arrears. Basically, meaning you may not have the right to any of the money you’ve inputted through the rental side of the shared ownership.
Similarly to the process of applying for anything potentially life-changing, you should check all criteria and make sure you suit the eligibility of the property and mortgage you are applying for. Next, read, read and read again the lease and terms of your contracts. Following this, you should always do the math. Check your finances and work out your monthly payments and if you can afford them against your other outgoings. You should also consider the longer term plan by analysing your staircasing options.
Due to the unbiased nature of our service and alongside the expertise and knowledge we have surrounding shared ownership mortgages, MortgageKey are the ideal mortgage broker for securing you the best deal on your Shared Ownership property.
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A mortgage of £150,000 payable over 17 years, initially on a fixed rate of 2.44% until 31/12/2022 and then a variable rate of 3.59% for the remaining term, would require 25 payments of £899.04 per month and then 179 payments of £973.58 per month. The total amount payable would be £198,466. Includes Lender Fee of £995 and Broker fee of £695.