By Melanie Mihill, Mortgage Consultant, Ipswich Building Society
There’s no shortage of media coverage around the problems faced by first time buyers. Taking the first step on the housing ladder can seem like an impossible task to some, which is why in the last ten years the government has introduced a series of low-cost home buying schemes, such as shared ownership and the Affordable Homes Programme 2016-21 aims to increase the supply of shared ownership and other affordable homes by March 2021.
Previously only open to key workers, social housing tenants and those in priority housing need, in 2008 shared ownership was extended to all first time buyers. Subsequent changes relaxed these rules further, meaning anyone who owned a property before could also benefit as long as their household income is no more than £80,000 per year (£90,000 for London).
Put simply, shared ownership is where applicants buy a share in a property (usually a minimum of 25%) and the remaining share is owned by a housing association, on which rent is payable. For the purchased share, would-be home owners are able to access specialist shared ownership mortgages.
The National Housing Federation reported the average monthly cost of shared ownership (mortgage and rent) at £688 compared to the average monthly housing cost for first time buyers at £893.
If you are thinking of taking out a shared ownership scheme, you might be wondering how the mortgage side works.
Firstly, you’ll need to decide how much of your property you wish to purchase. Most schemes require a minimum of 25% share. On this share, you then need to arrange your mortgage. Shared ownership mortgages are often available at up to 95% Loan To Value which means you’ll need to put forward a deposit, too, for the remaining percentage.
For example, if you wanted to purchase a 40% share in a £220,000 property this means you’d need to finance £88,000. Using a 95% LTV mortgage you could borrow £83,600, and would need to pay the remaining 5% deposit of £4,400 yourself.
Shared ownership mortgages are available from many banks and building societies, and you can either approach them direct or seek advice from a specialist mortgage broker.
One thing to consider is whether you would be best using a lender who uses manual underwriting, such as Ipswich Building Society. Manual underwriting means that a lender assesses mortgage applications in person, using expert underwriters rather than relying on computer models or automatic processes. The benefit is that each application is judged on its own merits, and they can look at personal circumstances in context and with common sense.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Author Bio: Melanie has been a Mortgage Consultant for two years and previously worked in financial services. Melanie believes that “we can all do with a helping hand when buying a new home” and says the most enjoyable part of her role is “helping people to get the property of their dreams”.