Here at Mansfield Building Society, we’re delighted that Shared Ownership Week asked us to put together a guest blog about Shared Ownership from the view of a mortgage lender.
Our CeMAP Qualified Mortgage Adviser, Debbie Sykes, gives answers to some of the questions you may have about Shared Ownership finance.
How does Shared Ownership differ?
Outright ownership mortgages, mean that you will require a deposit against the full value of the property (typically no less than 5%) and then you repay the remaining amount as monthly repayments over the agreed term of the mortgage - depending upon the lender this can be 25 - 35 years, subject to any maximum age limits that the lender will allow. With house price inflation making affordability more difficult, Shared Equity and Shared Ownership are government supported schemes to help prospective homebuyers get a foot on the housing ladder.
Shared Equity, means that you purchase a proportion of the property and then take out a loan for the remaining amount. The most common form of Shared Equity at the moment is the Help to Buy Equity Loan, where you will require a 5% deposit to purchase 75% of the property value with the remaining 20% from a government-backed loan.
Shared Ownership is different from Shared Equity in that for Shared Ownership, you are able to purchase a proportion of the value of the property that you can afford and rent the remainder from the Housing Association. You will then progress towards outright ownership by increasing the proportion of the property until you eventually own the property outright.
Will I need a deposit for Shared Ownership?
Yes, you will need a deposit and this is likely to be based on the share that you’re purchasing rather than the total value of the property, for example, some lenders will ask for a deposit equal to 5% of the share you are buying. It’s also worth bearing in mind that lenders may also set an overall limit on the maximum loan in relation to the value of the property.
For example, here at The Mansfield, we’ll lend up to 95% of the share being purchased up to a maximum of 75% of the property value. If you are looking at a property with a value of £100,000 and want to purchase a 50% share, you would need a minimum deposit of £2,500 - 5% of the £50,000 share. On the same property value, we would not allow you to purchase any more than £75,000 on a shared ownership basis because that would be greater than the 75% loan to value limit based on the value of the property.
Can I qualify for a shared ownership mortgage?
Whilst you may be purchasing a share of the property, lenders will assess your affordability and suitability for a mortgage in much the same way as they would if you are purchasing a house outright. Different mortgage lenders assess affordability differently and a Decision in Principle assessment is likely to take place before you proceed with a full mortgage application. A full assessment of your financial situation (such as bank statements, payslips, etc) will take place before you receive a formal offer as part of your mortgage application.
In addition, lenders are also likely to need to see that you are purchasing a share of a property from a pre-approved housing association registered with the Homes and Communities Agency. In most cases this simply means submitting a copy of the housing association lease.
Finally, since April 2016, the government has relaxed some of the eligibility criteria for Shared Ownership, allowing people from any occupation to access the scheme, although certain income restrictions apply (£80,000 per annum or less, £90,000 per annum or less in London). You’ll also need to meet the government criteria of being a First Time Buyer, an existing shared owner, or a previous home owner that cannot afford to buy a new one. Visit the government website to find out more.
What are the costs? Are there any fees?
The fees attached to a Shared Ownership mortgage vary from lender to lender. You should also consider fees attached with purchasing a home such as Valuation Fees and Legal Fees.
Fees, charges and interest rates do differ. Your mortgage lender will be able to help you understand which fees apply and when, and provide an illustration showing how much your mortgage repayments will be each month.
How do I know which lenders offer Shared Ownership mortgages and which one is best for me?
A number of banks and building societies offer Shared Ownership mortgages and you can approach us directly. Alternatively, you can seek advice through an independent qualified mortgage adviser. If you’re looking at a property within an approved development, the Housing Association can help point you in the right direction too.