For a lot of people nowadays getting their foot on the UK property ladder can be a big challenge and those who have a bad credit history can often find themselves unable to find a lender willing to provide them with a mortgage.
Amongst the many schemes the government has introduced over the years to help people facing these difficulties is the Shared Ownership scheme, also referred to as Part Buy, Part Rent or Share to Buy.
What is a Shared Ownership Mortgage?
A Shared Ownership Mortgage is aimed at helping first time buyers or previous homeowners who are currently unable to buy. The scheme works by allowing them to buy a portion of the property whilst paying rent on the rest of it which means you need to borrow less and can buy with a smaller deposit. For example, a buyer could initially choose to purchase 25% of the property whilst the remaining 75% continues to be owned by the council or housing association, so each month they pay a combination of mortgage and rent.
Buyers then have the option to purchase more of the property as their finances increase over time – this is known as ‘staircasing’ and means that they can eventually own the property outright.
Who is a Shared Ownership Mortgage Suitable for?
The eligibility for these types of mortgages varies across the UK but here is what is typically expected from those looking to apply for the scheme and who it is suitable for.
- Those with a combined household income of less than £80,000 (£90,000 in London).
- First time buyers.
- Those who used to own property but currently cannot afford to.
- People with an existing mortgage under the Shared Ownership Scheme.
- Those looking to downsize to a part buy – part rent retirement property.
- People with a deposit of around 5-10% of the equity share you are buying.
- Buyers with enough money to cover the costs such as legal fees, stamp duty etc.
Can I Still Get a Shared Ownership Mortgage if I Have Bad Credit?
As with most types of mortgages, having a bad credit history is likely to make things more difficult as lenders are less inclined to accept those who are deemed too risky.
However, there are specialist lenders who will consider applications from people for Shared Ownership with Bad Credit and can still offer some competitive deals.
Top Tips for Those with Bad Credit Looking to do Shared Ownership
Check Your Finances
Before you apply for shared ownership mortgage check your credit score and credit file to ascertain your full financial standing and take note of any potential issues.
Save, Save, Save
If you don’t have a deposit set aside then it’s time to make those sacrifices to ensure you have the necessary deposits as well as money for things such as legal fees.
Think Carefully About What You Want
Whether you’re already set on a property or are in the process of looking, be sure to take into account your future plans to find the right home not just for now, but one that will last you for years to come.
Get Advice From a Reliable Source
Find a reliable mortgage or finance advisor that is experienced in handling bad credit mortgages who can review and discuss your options with you. Your advisor will be able to find out if you qualify for the shared ownership scheme and will have relationships already in place with specialist lenders to give you a better chance of securing a good mortgage.
The Perks
With shared ownership mortgages the stamp duty can often be deferred until you increase your share of the property to 80% so be sure to ask if it is not mentioned.
Many people find that the combined mortgage and rental payments they will need to make for their shared ownership property comes to less than the rent they are currently paying which is worth considering.
This scheme can be a great stepping stone or those who plan properly and are confident that their income is going to increase over time.
Don’t be Deterred
Don’t be put off by a no, just because one lender says no doesn’t mean that the right deal isn’t out there for you.