Shared ownership mortgages are a popular product for first-time buyers and homeowners who are struggling to pay their mortgages. They offer buyers the opportunity of enjoying some of the benefits of home ownership at a reduced cost. Are they a good way to take your first step on the property ladder? What are the risks associated with them? And what shared ownership mortgages are now available?

This series of articles on shared ownership mortgages will provide you with the answers to these and other questions on part-buy/part-rent schemes.

Definition:

Let’s start with the basics. Shared Ownership Mortgages provide you with the opportunity of buying a stake in a property. This means the property is not entirely yours. You typically buy 25 to 50 percent of your home and pay the lender rent of the portion of your home you do not own. This means you have to pay your mortgage and rent. However, these schemes are designed to provide competitive prices and are generally cheaper than regular mortgages. Some shared ownership mortgage schemes do not require you to pay rent, just to make payments on your mortgage.

Advantages:

Shared Ownership Mortgages are cheaper. You need less of a down payment to buy a home. This means you can have the stability of owning (a portion) of your home at a fraction of the cost. You also have the option of “staircasing” your shared ownership mortgage, or buy the rest (or another portion) of the property later on. Owning a share on the property you live on also reduces the risk changes in the real estate market.

Disadvantages:

You don’t entirely own your home. You may have to pay rent and you can be evicted as any other tenant if you don’t make your payments. In any case, if the market value of your property increases you will miss out on some of the equity growth it provides.

Who are they for?

Shared Ownership Mortgages are an interesting option for low-income buyers who want the benefits of home ownership but cannot afford or do not have the credit rating to qualify for a conventional mortgage. For instance, it is an option for young buyers who still haven’t been able to build much of a credit history but want to enter the property market.

They are also a viable option for homeowners who are struggling to pay their mortgage and are willing to sell a portion of their home to reduce their monthly payments. However, there are private lenders that take advantage of the financial difficulties of homeowners to offer unreasonable prices and interest rates. Talk to a real estate counselor or lawyer before signing any documents.

Our next article will look into more details about shared ownership mortgages and what the requirements are to qualify for one.

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