Shared Ownership is a housing scheme that allows individuals to purchase a percentage share of a property while paying below-market rent on the remaining share, which is generally owned by a housing association.
The scheme is designed to help people get onto the housing ladder who can’t afford to purchase a property outright. It 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 over time, a process also known as staircasing.
Now that the Government’s Help to Buy scheme has ended, Shared Ownership mortgages have become more popular than ever with borrowers who have bad credit. One of the main reasons for this is that the size of the deposit required can be considerably lower. You only need to raise a deposit for the percentage share you are looking to purchase (which is usually between 10% and 75%), and this deposit can be as low as 5% of that share’s value.
Whether you are a first time buyer or a home mover, Shared Ownership enables you to buy a property with a smaller mortgage and deposit, even with bad credit. 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 that qualifies for the Shared Ownership scheme. These properties are typically new build homes or resales from existing Shared Ownership owners. There are dedicated portals that can help you with your research, allowing you to filter your property selection by type, value, and postcode area.
Purchasing a Share: Once you’ve found a property you would like to purchase, you will need to complete an affordability assessment using a Homes England affordability calculator to see what percentage share you can afford (typically between 10% and 75%). 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 and how much you can comfortably afford, as you will need to apply for a mortgage to cover the cost of your share.
The Rental Share: As well as paying the mortgage on the share you have purchased, you’ll also need to pay rent to the housing association. The rent is set at a below-market rate, often around 2.75% of the property value that you do not own.
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 contribute towards the cost of providing and maintaining communal areas. These charges must be factored in when calculating your affordability and can vary depending on the property and its location.
Staircasing: A great feature of 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. Under the new model, you can even buy shares in smaller 1% increments. As you buy more shares, your mortgage payments will increase and your rental payments will decrease, with the main goal being to own 100% of the property. Once you own 100%, you usually acquire the freehold (if it’s a house), meaning rent and certain service charges will no longer need to be paid.
Leasehold: Shared ownership properties are typically leasehold, which means you have a lease agreement with the housing association. Under the newest government model, new build leases are now set to 990 years (though older resale properties may still have 99 or 125-year leases). The lease outlines your rights and responsibilities as the homeowner.
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 it drops below 80 years, making the property more difficult to sell or remortgage.
Eligibility: Unfortunately, not everyone is eligible for Shared Ownership. There are specific criteria, such as a combined household income that must be under £80,000 (or £90,000 in London). Different associations will also have different criteria, such as the minimum deposit required, maximum mortgage lender fees, and acceptable mortgage interest rates.
If you have bad credit and need to apply to a specialist lender, it is important to check with the housing association to see if they have a cap on mortgage interest rates, as higher specialist rates could mean you do not meet their affordability checks.
Selling a Shared Ownership Property: When the time comes to sell, the housing association usually has “first refusal” to find a buyer for your share. This means they have an exclusivity period to sell it to another eligible buyer at full market value before you can put your 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 stricter than if you were purchasing 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 currently offering shared ownership mortgages for anyone who has had a Debt Management Plan (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 mortgage is possible, please get in touch and we will assess your credit file free of charge.
Buying a shared ownership property comes with many advantages and disadvantages. These are important to consider before deciding whether it is the right choice for you.
Whatever your current property goals are, finding the right specialist lender requires expert market knowledge. Whether you are focused on this specific step or exploring other borrowing options, Adverse Mortgage Advisors is here to guide you. Visit our complete mortgage help hub to explore dedicated advice for first time buyers, home movers, landlords, and anyone needing to navigate the property market with a complex credit history.
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 adverse events recorded on your credit file—get in touch and speak with one of our mortgage specialists. We will do all the hard work for you and fully support your goals of securing 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.
