What is a Shared Ownership Mortgage and how does it work?
Shared Ownership is a scheme that gives you the opportunity to own your own home, starting with a minimum of 50% equity in the property and up to 90%. The remainder of this percentage will be owned by one of two shared ownership schemes in Northern Ireland, namely Co-Own(formerly known as Co-Ownership) and FairShare or one of the many Schemes available throughout the rest of the UK. You will pay ‘rent‘ on the shares bought by your co-ownership scheme, generally starting at 2.5% – which will rise/decrease in accordance with inflation. If you miss payments on either your rent or your mortgage your home could be at risk of repossession.
Over time you are able to increase your share until you own the property outright, so it is very important for homebuyers (both previous homeowners and first-time buyers alike) to understand, explore & have awareness of all the different mortgage options available, so you can ultimately decide what is most appropriate to you. It is also
essential to the potential homeowner(s) to understand what they are getting into in terms of initial & ongoing costs and expenditure involved with owning a home through one of these home ownership schemes. With all of this in mind, it can be a steep learning curve for many, especially for those buying their first home or those looking to move away from traditional long-let rental properties.
Who qualifies for Shared Ownership?
Depending on where you are located in the United Kingdom, each scheme will operate slightly differently and have varying criteria/requirements.
Although there are many Shared Ownership providers in England, the general eligibility criteria is as follows:
- You must be at least 18 years old;
- You must not own another property either abroad or in the UK.
- Shared Ownership is generally for first time buyers.
- You must not be able to afford a suitable mortgage without the Shared Own scheme.
- In London, your annual household income must be less than £90,000
- Outside of London your annual household income must be less than £80,000.
- Must not be in mortgage or rent arrears-may be asked to provide proof.
- Must demonstrate you have a good credit history(bad debts & County Court Judgements/CCJs will hinder your mortgage application)
- Must be able to afford the regular payments, costs and upkeep involved in buying a home.
Shared Ownership for Northern Ireland shares some of the same criteria, but the eligibility criteria will depend on which of the two Shared Ownership schemes you decide to choose.
For Co-Own(formerly Co-Ownership) the criteria is as follows:
- You must be at least 18 years old to apply.
- You must live in the UK and may have to provide relevant proof of residence in Northern Ireland.
- You must live in the property as your only residence and cannot operate a business from it.
- You can’t apply for Co-Own if you currently own property which includes owning property or land, including commercial, or being named on any property, in Northern Ireland or elsewhere.
- Applicants with a poor credit score may be considered, as your credit history as a whole will be looked, including -how you have managed repayments on the likes of loans or credit cards etc.
- Acceptable employment for Co-Own includes; Permanent(6 months+), Fixed Term(12 months+), Temporary(12 months+), Zero-hour contracts(12 months+), Self Employed(3 years+).
- The following arrangements must have been settled for the period of time stated before you apply: Debt Relief Orders(6 years), Bankruptcy(6 years),Individual Voluntary Arrangement/IVA(6 years), Payday Loans & Home Credit(12 months), Money Judgements(12 months), Debt Management Plans & Defaults(minor cases will be considered, otherwise 12 months since settled), Missed or late payments(minor cases still considered, otherwise 12 months of clear payment history is required).
- Little or no deposit needed
- Must not own a home in the UK.
- Do not own a share of a home in the UK or abroad.
- Property must be a new build not exceeding £160,000.
- Must not be able to afford a mortgage without the FairShare scheme.
- Must be eligible to afford a mortgage for at east 50% of the full purchase price.
- Must be able to afford any upkeep or other costs to maintain the property.
- Other restrictions may apply at time of purchase.
- Deposit of 10-15% may be required
What can I afford for Shared Ownership?
Co-ownership allows for an income multiplier of 3x, with FairShare at 3.5x. This basically means you can borrow up to 3x – 3.5x times of the total household income.
Lenders, whether a bank or buildings society will differ and range from 3x to 5.5x your income.
Within England, a minimum of 25% of an applicant’s net wage and 2.5x their gross income should be used as a minimum towards home ownership. There is also an upper limit of 45% of their net wage and 4.5x their gross salary to ensure long term sustainability. As mentioned previously, within England you will need to check with each individual Shared Ownership scheme.
What deposit is needed for Shared Ownership?
You typically need to put down a minimum 5% deposit for Shared Ownership, but that’s only on your share rather than the total property price – e.g. if you have a 50% share on a £100,000 property, you will only need to pay 5% on £50,000, which would be £2500. That means you pay the remaining 45% of your share(minus the deposit) with a mortgage. You can Staircase(increase your shares in the property, or buy-out), which you can skip to here. You will pay rent on the remaining shares owned by the Shared Ownership scheme which we will also look at below.
Can you get an Shared Ownership Mortgage with 0% deposit?
Generally, now you will be pushed to find a 100% mortgage – you will more than likely require some form of deposit for buying any type of property within the UK, the only advantage with Shared Ownership is that much less of a deposit will be required, hence the scheme is referred to as “affordable” housing.
Is Shared Ownership worth it?
Ultimately that will be for you to decide.
A shared ownership scheme is designed to help those who cannot get a mortgage by themselves.
You may be single, a single parent, you may be a couple on lower-than-average incomes, you may have a young family.
Typically, if you fall into these categories then the shared ownership scheme has been designed to help you get on the property ladder.
The reason you are unable to get a mortgage could be due to affordability criteria from lenders.
Shared ownership schemes like FairShare, Share to buy & Co-own(formerly co-ownership) can help you own part of you home and allows you to staircase your way to full ownership over time as your financial position improves.
Another reason may be that you are fed up renting and want to own your own home, which Shared Ownership may present that option. With rent costs on a rise throughout the UK, it does make sense to actually own a share of your property as apposed to renting and owning a 0% share. This therefore can give you the ability to benefit from any future house price rises instead of simply paying rent.
Shared ownership does not limit you to these categories, but I have found that if you fall into this criteria it can help you get your desired home.
So if you are single, a single parent, a couple on low incomes or a young couple with a family shared ownership schemes may be right for you.
Speak to a mortgage adviser who deals with shared ownership, whether they work for a bank or another company the choice is yours, they will be able to discuss the benefits and disadvantages that come with shared ownership.
When should I Staircase in Shared Ownership?
If you are keen to buy more of your home we advise that you try and do so as early as you can. As this is an equity sharing partnership, the value of the share you are buying could increase the longer you leave it, making it more expensive to buy out.
This will be done in increments, usually of 5%, with the option of buying out the remaining shares at any point depending on which scheme you choose.
Keep in mind that Staircasing is not on everyone’s agenda and you can normally continue paying ‘rent’ on the remaining share for as long as you want.
Shared Ownership with bad credit?
When you apply for shared ownership with bad credit history, each provider will vary. For this example I’m using the Co-ownership scheme in Northern Ireland. Having a bad credit history will not stop you getting Co-ownership but the further away you are from the problems the better.
Co-ownership will look at your credit profile not your score. They will specifically use the Experian credit reference agency; your lender may use one or more other credit reference agencies. You can access your credit report on checkmyfile here where you can get a free for 30 days copy of your credit report(cancel anytime online, £14.99 thereafter) which will include Experian but also Equifax and TransUnion so you don’t need to purchase all three.
Co- ownership will look at any credit cards or loans you may have or had and how you have maintained these historically and whether you have or had any missed or late payments. How you have managed these accounts is taken into consideration as part of their decision.
It is important to look at your credit report before applying and any queries you have, resolve them before applying. The following are some things you should look out for before applying;
• The level and type of credit commitments you have
• Any late/missed payments • Any defaults – the number, amount and nature of these
• Court judgements, bankruptcies, individual voluntary arrangements also known as (IVA’s)
To qualify for Co-ownership the following list will need to have been settled for the stated period;
• Debt relief orders – 6 years
• Bankruptcy – 6 years
• Individual Voluntary arrangements (IVA) – 6 years
• Payday Loans & Home credit (or equivalent products) – 12 months
• Money judgements the likes of County court Judgements – 12 months
Minor defaults/debt management plans and missed or late payments within the last 12 months, these will be considered for your credit assessment.
If you have multiple defaults or Debt Management Plans with high balances, these will have to have been settled for 12 months before applying.
Regular missed or late payments will require you to be clear of them for a year before applying. You can’t have any adverse credit at the time of application.
As part of your assessment Co-ownership will review your last 3 months bank statements. If the statements show unauthorised overdrafts, returned direct debits and or bank charges for unauthorised usage you will not be eligible for Co-Own.
For people that are heavily reliant on credit or overdrafts to maintain household bills and other outgoings, you may not qualify for Co-Own or Shared Ownership either.
What is ‘rent’ with Shared Ownership and how much does it cost?
This video explains how the rent for Co-ownership is calculated so you understand what your future obligations will be. I explain using a share of £10,000 so you can multiply this to work it out yourself. It does not explain the mortgage element of your purchase. Rent for Co-ownership explained(shared ownership UK explained).
In this video we look at the housing association’s new Shared Ownership scheme within Northern Ireland. Co-ownership is a Shared Ownership scheme in Northern Ireland. Rent starts at 2.5% of the value of your share and is charged monthly by direct debit and will include ground rent if applicable. So if the Co-ownerships share were valued at £10,000, your rent for the year would be £250 paid in advance at the beginning of each month at £20.83.
Rent will be charged from the day your mortgage completes. When you buy back the last shares you will be charged up to the number of days in that month that you were a customer. A rental review is taken yearly by the Department for Communities, this increase is presently in line with the Retail Price Index.
If you continue renting and do not buy back the other shares your rent could grow significantly over time. Your rental payments will show up in Experian credit reports so paying on time could help your case to borrowing more and buying back the additional shares but could also hamper you if not maintained adequately.