Shared Ownership is a housing scheme which allows individuals to purchase a percentage share of a property while paying below market rent on the remaining share generally owned by a housing association.
The scheme is designed to helping people get onto the housing ladder that can’t afford to purchase a property outright and is perfect for people with careers where they expect their incomes to increase in the future as this will enable them to purchase the remaining shares, also known as staircasing.
Now that the Governments help to buy scheme has ended Shared Ownership mortgages have become even more popular than ever with borrowers with bad credit. One of the main reasons for this is the size of the deposit required can be considerably lower due to only needing to raise the deposit as this can be as low as 5% for the percentage share you are looking to purchase, which is usually between 25-75%.
Whether you are a first-time buyer or a home mover a Shared Ownership even with bad credit enables you to buy a property with a smaller mortgage and deposit. To be eligible, you must have a household income under £80,000 (or £90,000 in London). If this sounds like the right choice for you, get in touch and we can help you secure the best Shared ownership mortgage.
Choosing a property: You start your journey by looking for a property which qualifies for the Shared Ownership scheme. These properties are typically new build homes or resales from exiting Shared Ownership owners. There is a fantastic website called Share to Buy that will be able to help you with your research, you will be able to filter your property selection by property type, value, and postcode area where you would like to buy.
Purchasing a Share: Once you’ve found a property you would like to purchase you will need to complete an affordability assessment using an HCA affordability calculator to see what percentage share you can afford, usually 25-75% as most associations will want you to purchase the maximum share you can afford. The exact percentage you can purchase will also depend on what is available for the property you are interested in and how much you can comfortably afford as you will need to apply for a mortgage to cover the cost of the share you are looking to buy.
The Rental Share: As well as having to pay the mortgage on the share that you have purchased, you’ll also need to pay rent to the housing association. The rent is usually set at below market rate at an agreed percentage often 2.75% of share value which you have not purchased.
Additional costs: Shared Ownership properties are all leasehold which means the owner will also be expected to pay service charges and ground rent as well as have suitable insurance in place. These charges are to contribute towards the cost of providing and maintaining the communal areas outside the property. These charges will also need to be factored in when calculating your affordability and can vary depending on the property and its location.
Staircasing: Another great feature with the Shared Ownership scheme is that you are given the option to purchase additional shares within the property as your financial situation improves. This process is called staircasing. As you buy more shares your mortgage payments will increase and your rental payments will decrease, with the main goal to own 100% of the property which will then enable the property to become freehold which means that rent, services charges, and ground rent will no longer need to be paid.
Leasehold: Shared ownership properties are typically leasehold which means that you have a lease agreement with the housing association. Typically, if you are buying a new build property the leasehold would tend to be 99 to 125 years. The lease will outline your rights and responsibilities as the home homeowner in the shared ownership arrangement.
If you are looking to purchase a resale shared ownership property it is essential to find out the remaining term of the leasehold as this can affect which lenders will accept your application. Renewing the leasehold becomes more expensive once the remaining leasehold has less than 75 years remaining, and the property will also become more difficult to sell for full market value.
Eligibility: Unfortunately, not everyone is eligible for a shared ownership. There are usually specific criteria such as combined household income which must be under £80,000 (or £90,000 in London) different associations will also have different criteria such the minimum deposit required, maximum mortgage lender fees and interest rate the mortgage can be.
If you have bad credit and need to apply to a specialist lender for a mortgage it is important to check with the housing association to see if they have a cap on mortgage interest rates as it could mean you are not able to purchase a property from them.
Selling a Shared Ownership Property: When the time comes to sell your shared ownership property, the housing association usually have first refusal to buy the property. This means they have the options to find a buyer and sell it to them at full market value before you can put your shared ownership property on the open market.
Yes! There are many lenders that will consider lending to borrowers with bad credit. However, the tolerance level for adverse credit will be less than if you are looking to purchase a standard resale property, especially if the adverse credit has been recorded against you in the past 3 years and hasn’t been satisfied.
Unfortunately, there are no lenders offering shared ownership mortgages for anyone that has had a DMP, IVA or Bankruptcy on their credit file unless they have been satisfied or discharged for a minimum of 3 years.
If you have bad credit and would like to find out if a shared ownership is possible then please do get in touch and we will assess your credit file free of charge.
Buying a shared ownership comes with many advantages and disadvantages. These are important to consider before deciding whether a shared ownership is the right choice for you.
Deposit: The amount of deposit required to purchase a shared ownership property is less because you only require a deposit for the percentage share that you are looking to purchase
Staircasing: You have the option to purchase more shares in the property as your financial situation improves. With the goal to one day to own 100% of the property.
Security of home ownership: You will have the same rights and responsibilities as somebody that owns 100% a property with a mortgage.
Step onto the housing ladder: Shared ownership is a great scheme that can enable you to buy a desirable property in terms of size or location that might otherwise would not have been affordable.
Support: Housing associations will often provide support for maintenance and repairs, which can be helpful for homeowners.
Rental payments: You will need to pay rental charges for the percentage share of the property that you do not know, and even though they are likely to be below market rent, this can still be a significant ongoing cost.
Limited choice: There might be limited availability or choices in certain areas.
Leasehold: As shared ownership properties are leasehold you will be required to adhere to any leasehold restriction and pay service charges and possibly ground rent to the housing association in addition to the rental charges.
Staircasing costs: Although staircasing allows you to buy more shares in the property this can be costly as the price you will pay for the new shares will be determined by market conditions at the time and process will also involve paying valuation and legal fees.
Eligibility: You may not necessarily qualify for the scheme if your household income is higher than £80,000 (£90,000 in London). It can also be harder to find a lender if you have bad credit as not all lenders offer shared ownership mortgages and even fewer that will accept bad credit. It is for this reason that it is essential that you have a bad credit specialist by your side that knows which lenders will consider your application and those that will not.
Selling challenges: The housing association will likely have first refusal to find a buyer for your property, and finding a buyer may take longer than with a traditionally owned property.
Ultimately the decision to purchase a shared ownership property will depend on your individual circumstances and needs.
If you would like the advice of experts within the shared ownership mortgage sector whether you have complex income or bad credit recorded on your credit file, get in touch, and speak with one of our mortgage specialists at Adverse Mortgage Advisors and we will do all the hard work for you and fully support you with your goals to buying a shared ownership mortgage.
If you have questions about getting a mortgage with an adverse credit score, read our FAQs. Our wealth of knowledge within this market means that we’re confident in our ability to offer specialist mortgage advice and secure the mortgage you want regardless of your credit history.
Yes, it is possible to get a shared ownership mortgage even if you have bad credit but there will be challenges as there are few lenders that offer Shared Ownership mortgages to borrowers with bad credit. Here’s what you can do:
Even though it might be tough, there are ways to increase your chances of getting a Shared Ownership Mortgage with bad credit.
Call our Bad Credit Mortgage Specialists to find out what options are available for you.
Shared ownership mortgages work like this:
Shared ownership mortgages help you get onto the property ladder with a smaller deposit and lower monthly costs.
But it's important to think about the overall cost which include the mortgage payments, rent, and service charges, as well as potential maintenance costs before going for a shared ownership deal.
Whether shared ownership mortgages are a good idea for you depends on your personal situation and preferences. Here are some things to think about:
In the end, whether shared ownership is right for you depends on your finances, what you want in a home, and your plans for the future.
Our Shared Ownership Mortgage Specialist Advisors will help you understand all the different requirements and guide you through the application process once you have made your decision.
Shared ownership mortgages for people with bad credit will cost more compared to those with good credit. Here's why:
Overall, shared ownership mortgages for those with bad credit might be more expensive due to higher interest rates, fewer lender options, extra fees, and possibly bigger deposit requirements.
Borrowers in this situation must think carefully, that’s why our broker will help you compare offers, and find the most affordable solution for your circumstances.
The deposit needed for shared ownership mortgages can change based on factors like the lender's rules, the borrower's money situation, and the property itself. Generally, shared ownership mortgages usually need a smaller deposit compared to regular ones, usually around 5% to 10% of the share you're buying.
But if you have bad credit, you might have to give a bigger deposit to make up for the risk to the lender. Sometimes, this means putting down a deposit closer to the higher end of the usual range, or even more.
We will help you understand what is expected and how it might affect your chance of getting a shared ownership mortgage with bad credit. We can also give you advice on how to improve your credit score and work out how a bigger deposit can help you get better terms and improve the chance of approval.
