Having a low income and small deposit continues to be the main barrier stopping people from buying their first home. The Help to Buy government schemes aim to make home ownership more affordable for people without substantial savings.
With Shared Ownership, you part-buy and part-rent a home from a housing association which means you would need a much smaller mortgage than if you were buying the whole property. You can purchase a share of between 25% and 75% from a housing association and they would then charge you rent of up to 3% of the share they own. So for example if you bought 50% of a £100,000 flat, the housing association could charge you up to £155 a month on their share.
Similar to shared equity, you can gradually increase your share of the property until you own it outright. You can either pay for the extra share in cash or arrange for additional mortgage lending to cover the cost.
Help To Buy: Equity Loan
There are both government-backed schemes and also private sector schemes that provide you with an equity loan to put towards buying a property. It can be a quick way to boost the size of your deposit and increase your chances of getting a good mortgage deal.
With the government-backed scheme, the loan will be of up to 20% of the purchase price to add to your 5% deposit.
When you come to repay the loan you will repay the market value at the time, not a fixed cash amount. For the first five years the loan is interest free, but from year six onwards you have to pay monthly fees which start at 1.75% and then increase every year by inflation +1%. These fees do not count towards what you owe on the equity loan so it’s important to factor in this additional cost when weighing up whether shared equity is right for you.
Help to Buy: Mortgage Guarantee
A second phase of the Help to Buy scheme came into effect in January 2014. In this scheme, first time buyers (as well as existing homeowners) are able to purchase either an existing property in the UK – not just in England – with a deposit as low as 5%.
A mortgage is required from a lender of up to 95% of the property’s value, with the Government guaranteeing the lender (not the purchaser) up to 15% of the property value.
This mortgage guarantee scheme is available for properties with a purchase price up to £600,000.
Shared Ownership FAQ’s
Do you charge a fee?
We do not charge fees for our mortgage advice, and have never charged fees for Affordable Housing advice.
Why should I use you for my mortgage advice?
We are registered on the Help To Buy South West and Help To Buy South panels and have a specialist broker who deals only in affordable housing. We have excellent relationships with lenders and housing associations to allow for a speedy mortgage process.
Am I eligible for the scheme?
Before you can apply for a shared ownership mortgage you will need to apply to one of the government agencies, such as Help to Buy South or Help to Buy South West. They will assess you eligibility based on a few guidelines.
- Your household should earn between £18,000 and £60,000 per year. If you have less income but substantial savings there may be other schemes that are more suitable for you.
- You will also need at least £2,500 additional savings to cover legal costs and associated fees, and have a good credit history.
- The minimum deposit required is 5% of the share price, however if you have a bigger deposit (15%+), you have a greater choice of mortgage lenders.
- You must be a British of EU/EEA citizen, or have indefinite leave to remain in the UK.
I haven’t found a property yet, but can you tell me how much I can borrow on the Shared Ownership scheme?
The rent charged on the property plays a large role in your affordability and varies from property to property. We can have a look at roughly what you can borrow but to be more accurate you will need to have a property in mind first.
How long will it take to get an Agreement in Principle?
We receive a high volume of enquries but endeavor to have a response back to you within 24-48 hours from receipt of the necessary documents.
I have been offered a property, what do I do now?
Please get in contact and forward us a copy of the offer letter. We will also need you to gather copies of the documents required (you will be provided with a list), so that we can book an appointment to talk through your next steps.
My partner is unable to go on the mortgage due to bad credit or personal circumstances. Is this a problem?
You can still continue with your application, however you may need a larger deposit and be subject to the lenders criteria.
When do I pay the deposit?
You will need to pay the deposit to the solicitor shortly before you are due to exchange contracts. You may need to provide proof of the deposit during the mortgage application process.
Do I need a specialist solicitor?
Yes, you will need a solicitor who is experienced in shared ownership as there is additional legal work involved. We can recommend a solicitor for you if you need help finding one.
Can I use Benefit Income to boost my application?
Yes, however you need to put down a 15% deposit for the lenders to accept it. Your child tax credits need to be up to date and show the income you are on now. Any discrepancies will delay your application as you will need to get an amended award letter. Your best option is to try and put a 20% deposit down as those lenders accept bank statements as proof. Student loans and bursaries are not acceptable.
I am not working but have benefit income such as Child Tax Credits and Child Benefit, can I get a mortgage?
No, you will need to have a salaried income. The lenders will only accept benefit income up to the same amount as your salaried income. For example, if you are earning £5,000 they will only accept £5,000 worth of benefits.
If I easily pay £700 a month rent at the moment, does this mean I can get a mortgage?
Not necessarily. The lenders will assess you based on your income vs your outgoings. The rent that you will need to pay to the Housing Association is also included in these calculations. Just because you are paying a certain amount of rent at the moment does not mean the lenders will deem this as an affordable mortgage payment.