Buying a home is a rigorous deal. It involves exploring different properties and locations and calculating the total amount to buy as a shared ownership mortgage. It is becoming increasingly popular among homebuyers seeking to lock in the property without purchasing the property.
What Does a Shared Mortgage Imply?
A shared mortgage is a government-backed scheme that involves buying a home by first renting a portion. It is generally a staircase to buying a property. First-time buyers can purchase a partial property portion rather than the whole property in an economical way.
It is less expensive than owning the property, and the deposit one puts also smaller than mortgaging the whole property. The portion-owner pays the rent on the property. In such a way, the monthly repayment becomes similar to paying on an entire mortgage.
Who is eligible for Shared mortgage Ownership?
To apply for this, the individuals need to meet the below criteria:
- Ideal for first-time buyers
- Previous property owners no longer holding property and cannot afford the mortgage
- Individuals having an annual household income of less than £90000
- Individuals who wish to move to hold a shared ownership mortgage
Note: There is no particular credit score to qualify for a shared mortgage. Lenders analyse the above-listed parameters to consider the loan application.
What percentage of The Property Can You Own as A Shared Mortgage Holder?
At the initial moment, one can buy between 25-75%. The buyer can buy more shares in the property later. As you buy more shares, you eventually become the owner of the property. This is known as “staircasing”. You can either take out a mortgage or pay to buy a share with your savings. The more shares you buy, the less rent you will pay. The amount you will have to pay depends on the share the landlord holds.
Which property types you can buy in shared ownership?
Landlords provide housing associations, local governments, and other housing organizations. The majority of shared ownership properties are leasehold properties. It means a buyer can hold the percentage in a property only for a specific time.
The landlord gets the ownership back at the end of the lease period. In the majority of cases, shared ownerships generally applied to newly-built homes. You can also apply for –
Investing in an existing home through a shared ownership resale scheme
Invest in a home that aligns with a specific health situation. For example- if you have a long-term disability, you may like to own a ground floor flat.
To buy and confirm your shared mortgage share, shared ownership mortgage lenders may ask for a 5-10% deposit according to the property you wish to invest in.
What is the probability of securing a Shared Ownership Mortgage with Bad Credit?
Lenders generally prefer and prioritise shared mortgage applications having a good credit profile. This does not mean having bad credit may disqualify you. While considering less-than-ideal applications, lenders look for individuals who could pay a large amount as a deposit upfront. Saving up additional deposits can help qualify for a shared ownership mortgage with bad credit. It does not imply guaranteed approval.
Lenders analyse income and other holdings to analyse your capability to qualify for the mortgage. They also analyse the share you wish to buy in a property. Suppose you want to buy a 40% share. Lenders may decline the application because of your credit score. They may suggest you buy a lower property share to qualify.
Multiple issues may impact shared mortgage bad credit loan applications:
- County Court Judgements (CCJs)
- Missed payments
- Debt arrears
- Loan Defaults
- IVA, bankruptcy or DMP
Having bad credit isn’t the only cause of loan application rejection. Not having a credit score simply eliminated one from applying for one.
It is the primary reason lenders turn individual borrowers away or offer unfavourable rates. Some lenders remain flexible in lending on bad credit. It is ideal improving credit profile and score before applying for a mortgage. It may impact the credit score significantly.
Thus, acceptance and rejection of the shared mortgage loan application depend on your credit score. And if you qualify for the mortgage, the deposit you need to put in depends on your credit score.
Usually, a lender demands 5-10% of the deposit on a good credit score. Here, lenders share less risk of lending the mortgage. With a bad credit score, you may have to provide up to a 20% deposit to get the loan approval. You will have to pay 20% of the property value. If you have too many CCJs or bankruptcy, the deposit amount may increase.
Apart from this, you may witness a slight increase in the interest rates on bad credit.
What Properties Can You Invest in As a Shared Mortgage on Bad Credit?
There is good news if you’ve been rejected for a mortgage owing to bad credit in the past. Some lenders provide shared mortgages to individuals’ turndown by high-street mortgage lenders. On bad credit, you do not share many shared mortgage options.
You may bring a guardian with you when you apply for a mortgage if you wish. He can act as a guarantor. Here are shared mortgage options for bad credit individuals.
a) Joint mortgages
If you are married, or in a live-in relationship with a person you are buying the property with. In this, each person shares equal rights over the property. Both the individuals involved can claim an equal share in the property if another tenant dies. Both share the freedom to enter any name in the property’s will. They can choose the person to whom they want to transfer the property rights.
b) Tenants in Common
If you are buying a home partnering with other home members or friends, this option can be ideal. When you enter into this agreement:
- Each person owns a unique property share
- Cannot inherit the property if the tenant dies
- Can choose to leave the share in any will
To become tenants in common, you must execute a deed of trust with the assistance of a lawyer.
c) Buying with family as a guarantor
You can apply for a joint mortgage with your family as a guarantor on bad credit. It will help you access a large mortgage and open doors to wide deals.
In this, you may exercise full ownership of the property, and your family might not be liable for stamp duty. Both you and your family will be responsible for making regular payments. If you encounter a salary increase, you may release your guardians as a guarantor.
In this way, Shared mortgages are ideal for people with lower wages and bad credit. It is one of the best ways to get on the property ladder and buy a bigger portion than you would have otherwise secured on a mortgage. In this way, you can save on rent and exercise flexibility to increase your stake in the property.