Shared Ownership mortgages are often seen as the lifeline for those on low or middle incomes living in rented property but want to get onto the property ladder. This is largely due to Shared Ownership mortgages offering cheaper upfront options in which you can combine a mix of mortgage repayments and rental options to acquire lower rates.
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:
#1 Lack of Ownership
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.
#2 Collective Costs
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.
#3 Maintaining Maintenance
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.
#5 Selling your property
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.
#6 Less Protection
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.
#7 What should you do before applying for a Shared Ownership mortgage?
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.
Shared Ownership mortgages with MortgageKey
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.
Speak to one of our friendly advisors over the phone or contact us.