Shared Ownership Mortgages – Pros and Cons

November 8th, 2016
Shared Ownership Mortgages – Pros and Cons

Shared ownership mortgages are best for people who cannot afford to buy a home single handily. This government scheme is specially designed for first time buyers who struggle to get a foothold on the property ladder.

Shared ownership mortgage – how does it work?

In this case, the buyers can split their purchase and form a partnership with their local housing association. This scheme is offered only to first time buyers or to people who had a home earlier, but cannot afford a new one anymore. One can buy a share in the range of 25% to 75% and pay rent for the rest. The scheme is only for people with annual salaries of less than £60,000.

The government of the UK had announced that as of April 2016, this scheme can be leveraged by people with annual salaries of less than £80,000. In big cities like London, the salary limit is set to £90,000. You need to pay just a small deposit (5%) and a mortgage to buy the share of the property.

Benefits and drawbacks of shared ownership mortgage:

Well, it is clear that the shared ownership option is one of the best ways to buy a home and scale the property ladder. Mathematically, if you want to buy a home worth £150,000 then 5% of it would be equal to £7,500. Now, as you are buying a share of this so, your payment would be even less than the 5% amount. Let’s say you are buying a 50% share then you deposit amount would be equal to £3,750. This is very cheap and much more affordable.

If you can pay more and easily manage the monthly repayments then you can also go for a 75% share provided you need to pay rent for the remaining share. If you want to upgrade your share in the home, then the first step is to get the property valued. A catch here is that if the house prices have boosted then you need to pay a higher price than your initial share. Also, the valuation expense would be on your head.

Suppose you have your part of the ownership and want to rent out the place but, are unable to do so due to the local housing association’s rules. In this case, you cannot move out of the property especially when you have not upgraded your share to 100%. Also, with the ever increasing house prices reaching to a 100% share would become highly difficult. In this case, you would be compelled to live in the same home for a much longer time than you wish to.

On a positive note, the scheme can work wonders for people who are sure about the increase in their earnings and savings. However, the local housing association, which would be holding a bigger share in the house, can refuse selling of the place even if you want to. They will have a right to purchase the property in a time period of 21 years from the day they acquire a 100% ownership.

To sum up, you need to consider all the aspects of shared ownership mortgages before deciding to go with it. There are chances of success and failure so, it becomes more important to check all the possibilities and then only go for this kind of mortgage. If you want more information about mortgages then visit our website or you can call our responsive team of mortgage experts on 08008807656.

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