Just because you're self-employed, a contractor or freelancer, it doesn't mean obtaining a mortgage is harder than someone with a set salary. With the right amount of preparation and planning, the process can be easier than you think.
In last year’s Autumn Statement the Government pledged to inject £1.4billion into affordable housing plus £2.3billion for more homes in ‘areas of high demand’.
The investment is to be shared between three current schemes – Affordable Rent, Rent to Buy and Help to Buy Shared Ownership. One of these schemes, Shared Ownership, has been helping people into home ownership for the last 30 years.
What is Shared Ownership?
Shared Ownership provides those who do not currently own a home, the opportunity to purchase a share in a new build or resale property. The scheme is a cross between buying and renting and allows the purchaser to buy a share in a property between 25% - 75% of the purchase price, and then pay rent on the remaining share.
The deposit can be a lot lower than would be required when purchasing outright, as the purchaser will often require a smaller mortgage for the share they are purchasing. There is the option to buy further shares in the property at any point in the future. This process is known as staircasing and provides the opportunity for future outright ownership.
What are the benefits for Shared Ownership?
The over-riding benefit of a Shared Ownership mortgage is that it provides access to homeownership that would otherwise be unaffordable. Other benefits include:
- A lower initial deposit. Your deposit can be as little as 5% of the price of the share, not of the whole property value for example, if you were purchasing a property with a 50% share of the purchase price the 5% deposit would be: Property price: £200,000, 50% share of the property price: £100,000, 5% deposit of share price would be £5,000.
- You can start with purchasing as little as a 25% share of the purchase price, depending on the Housing Association’s criteria.
- You can gradually increase your share in the property when you can afford to and eventually own the property outright.
- The rent paid on the remaining share is often much less than the rental rates charged on the open market.
Who is eligible?
You are eligible if:
- You are at least 18 years old, but worth noting that some mortgage lenders will require the minimum lending age to be 21 years old.
- In most cases you will also need to have enough savings to cover a minimum 5-10% of the equity share you are buying, as a deposit. In addition you will need at least £2,500 to cover the costs of buying a home.
- You have a gross household income of no more than £80,000 per annum or £90,000 per annum in Greater London.
- You are unable to purchase a suitable home to meet your housing needs on the open market.
- You do not already own a home. For example; if you are a first-time buyer or if you used to own a home, but can’t afford to buy one now.
- You are not in rent arrears and can demonstrate that you have a good credit history (no bad debts, no missed payments on credit agreements or County Court Judgements) and can afford the regular payments and costs involved in buying a home.
How do I find a Shared Ownership property?
To find out more about Help to Buy Shared Ownership schemes you can visit the Help to Buy Government website (www.helptobuy.gov.uk/sharedownership), which covers schemes in England, and contact the Help to Buy agent in the area you want to live. Help to Buy agents can guide you through the options available and explain the eligibility and affordability criteria. There are also similar schemes in Northern Ireland, Wales and Scotland.
How do I get a Shared Ownership mortgage?
Not all lenders provide mortgages for shared ownership, but many of the major banks and building societies will. Housing Associations providing shared ownership properties will usually provide a list of independent financial advisors who can advise on and arrange a mortgage that is right for you. Of course, you can also use your own financial adviser to arrange a mortgage too.
Providing you meet the eligibility criteria, Shared Ownership can be an affordable way to get onto, or back onto the property ladder, and you may find you can buy a larger home than you would have otherwise been able to afford. What's more, you may find you can save some extra money each month, which you can later use to increase your stake in the property.