Shared Ownership Mortgages

Shared ownership mortgages are gaining popularity among would-be home owners who are searching for the most affordable mortgage deals. Shared ownership schemes allow home buyers to buy a percentage of the property and to pay for the remaining share with monthly rent. First time home buyers and other mortgage applicants who might otherwise be unable to afford to buy a home have benefited from shared ownership mortgages.

Unlike conventional mortgages, which require that the borrower finance the entire value of a house, shared ownership mortgages allow buyers to purchase only a portion of the dwelling, generally 25 to 50 percent, at a reasonable rate. The owner may have the option to purchase additional shares, depending on the nature of the lease. Shared mortgages make the process of buying a home accessible to a wider range of applicants. With shared ownership mortgages, you can begin investing in a house of your own, even if you can't afford the entire dwelling.

Shared Ownership Versus Conventional Mortgages

Mortgages represent a significant financial commitment, whether you participate in a shared ownership scheme or take out a traditional loan. With conventional mortgages for residential dwellings, the borrower must secure the loan with a home deposit and repay capital and interest with monthly repayments. A standard home deposit for a conventional mortgage constitutes 5 to 10 percent of the property's value. The larger the deposit, the lower the borrower's interest rates may be and the shorter the repayment term of the mortgage.

Conventional loans require that the applicant prove that he or she has an adequate income to afford the dwelling before receiving the top mortgage rate. By contrast, sharing schemes require that the applicant prove insufficient income to afford the full value of a home. If your income exceeds a certain level, your application to share a contract with a landlord may be declined.

Unlike conventional mortgage loans, the majority of shared ownership mortgages on the market apply to housing association homes. For this reason, most of the properties available through shared ownership schemes are smaller dwellings or flats located in urban areas. However, more houses in suburban or rural areas are becoming available as commercial businesses join public housing associations in offering shared ownership schemes to home buyers who are unable to afford traditional residential mortgages.

Shared ownership mortgages have allowed many council tenants and other individuals and families in search of affordable housing to enjoy the benefits of owning a share of interest in a home. Over the years, the property owner may purchase additional shares of the residence, a process known as "staircasing." As the owner finds additional sources of financing, the percentage of the residence that he or she owns increases, and the percentage of rent being paid decreases accordingly.

Restrictions on Sharing Property

While owning a share of a property has its advantages, this approach may also have its drawbacks. In order to qualify to purchase only a share of a house, you must generally not exceed certain income rates. If your income exceeds a certain level, you may not be eligible for the more popular sharing agreements. Some sharing arrangements are restricted to key workers, such as health services workers, teachers or law enforcement workers, who are offered this incentive as a benefit of their employment.

When you are investigating shared ownership mortgages, it is important to confirm whether you have the option to purchase 100 percent of the dwelling. Some landlords reserve the right to own a certain share of interest in each housing unit. Other landlords allow owners to gradually purchase more shares in increments until they have paid off the entire mortgage. Properties may be purchased directly through a housing association or through private owners who are reselling the residence. Increasingly, commercial brokers and vendors are getting involved in this promising new market.

As with any other loan, shared ownership mortgages represent both an investment and a financial obligation. If you are unable to repay either the rent or your percentage of the loan, you may face repossession of the property. Before signing a contract, use a repayment calculator to determine how much you can afford to repay each month, based on the property value, the variable or fixed interest rates and the length of the repayment term. For the most affordable rates, compare offers from a number of associations or sellers in the area that interests you.

Before you start your search for the best sharing arrangements and interest rates, be aware that certain variations of these schemes are available only to council tenants who meet the proper income qualifications. If you are having difficulty meeting the financial requirements for conventional home ownership, consider the potential benefits of these shared ownership mortgages. Find the best rates from trusted lenders can help you achieve your dream of owning a house.