What is Shared Ownership?
Shared ownership gives people the chance to own a share of a property. At the same time, they can rent the remainder of it. This is something that the government supports. It seeks to provide a path to home ownership for those who otherwise would have difficulty purchasing a home.
In shared ownership, you purchase a share of a home’s market value, often between 25% and 75%. You will then pay rent on the rest, which is owned by a housing association. This shared ownership alternative is ideal for first-time buyers. This is vital for people who can’t afford the prohibitive expense of full ownership in the current housing market.
Definition and Overview
In this sense, shared ownership provides a flexible and inviting entry point into the housing market. It’s subsidized by the government and usually administered by housing associations, which have an obligation to upkeep the homes.
This scheme is a game-changer for first-time buyers. It gets you onto the property ladder with a tiiiiiny deposit! This support from housing associations means that shared ownership properties are usually better managed than other homes, frequently meeting the needs of their local community.
How Shared Ownership Works
Start by buying a percentage of the property. You typically buy between a quarter and three-quarters of its full value through a mortgage. You’ll pay rent on the remaining 70% share to a housing association.
After some time, you can benefit from the option known as ‘staircasing.’ This choice allows you to increase your share of ownership by 25% at a time, or in some cases, as little as 10%. The price of these additional shares is based on the prevailing market value, making prices unpredictable.
The scheme is directly linked to leasehold agreements. Just be sure that you’re aware of what’s involved with this specific type of ownership.
Benefits of Shared Ownership
One of the key benefits is the reduced up-front cost in comparison to purchasing a property in full. This model has freed the market for would-be buyers with lower deposits. Instead of needing the whole value of the property upfront, the deposit is only based on the share you’re buying.
When you purchase additional shares, you’re increasing your equity in the home, which is a huge financial advantage. Shared ownership offers more flexibility to make changes to the property than standard renting.
By engaging the community as co-creators, this approach cultivates community ownership and personal investment.
Eligibility for Shared Ownership Mortgages
Who Qualifies for Shared Ownership?
Shared ownership schemes allow you to purchase a share in your home, generally between 25%-75%. You might have the option of buying larger shares later on.
To be eligible, you need to meet several key criteria:
- Your household income should not exceed £80,000 per year, or £90,000 in London.
- Being a first-time buyer is crucial, but if you’re an existing shared owner or have been a homeowner facing financial challenges, you might still be eligible.
Applicants must show a genuine need, which can include financial hardship or inability to secure a full mortgage. Housing associations can impose additional eligibility requirements, such as local connection or working in certain sectors.
Impact of Bad Credit on Applications
Lenders look at various factors when assessing applications.
Defaults, missed payments, and County Court Judgments (CCJs) can be concerning. Although high street lenders will likely be put off completely by this, specialist lenders will be able to take recent CCJs into account.
Having a track record of financial responsibility, even if your past includes a few stumbles, will help your case. A few years post-bankruptcy, some lenders may be willing to look the other way.
Lenders assess your overall financial situation, including income stability and ability to repay.
Other Eligibility Factors
Several other factors play a role in your eligibility.
Regular employment or consistent income streams are vital. A good savings record can support your application.
Lenders will look at your overall financial situation, making sure you can easily afford repayments.
We hope that this is helpful to you to understand that though bad credit certainly complicates things, shared ownership is not out of reach.
Thanks to specialist lenders and a clear demonstration of financial stability, you can discover the right fit.
Can You Get a Mortgage with Bad Credit?
It is possible, and increasingly so with Shared Ownership schemes. These programs increase home ownership accessibility. They allow you to purchase a percentage of a home, typically ranging from 25-75%, and you’ll pay rent on the rest.
Each lender has their own set of guidelines they use to evaluate applications with bad credit. Many lenders value certain elements of your credit history much more than others. Which is why it’s so important to not just go with the first option you find.
Specialist lenders know that adverse credit isn’t always straightforward. They tend to provide customized solutions for those who fall outside the traditional financial box.
Credit Issues Affecting Eligibility
Different types of credit problems may affect your likelihood of getting a mortgage. Typical issues are County Court Judgements (CCJs), missed payments or defaults.
Therefore, severe credit issues, like defaults within the past few years, would be much more difficult to get approved for. If these credit issues are older, they may be looked on more favourably.
If it’s been a few years since your bankruptcy, some specialist lenders will still review your application. This flexibility highlights just how important it is to know your credit history. It highlights the importance of working with lenders who are willing to work outside the spreadsheet.
Severity Levels of Credit Problems
| Severity Level | Credit Issue |
|---|---|
| Minor | Missed Payments |
| Moderate | CCJs |
| Severe | Bankruptcy |
Lenders evaluate these severity levels and decide eligibility based on their evaluations. They generally like older credit issues, since those show a long history of financial rehabilitation.
It’s important to have as clear an understanding of your credit history as possible. Understanding what lenders are looking at can better prepare you and help you put your best foot forward before you apply.
Lenders Offering Bad Credit Mortgages
Specialist lenders serve the markets that the big bank lenders don’t like to serve. They provide shared ownership products and bad credit mortgages.
Many mainstream lenders now have specialist products available for those with an adverse credit history. Shopping around among different lenders will allow you to identify choices that more closely match your situation.
Usually, you’ll be required to make a larger deposit, at least 15% to 20% for buyers with bad credit. A minimum deposit of 5% is required for a Shared Ownership scheme.
To ensure success, it’s critical to work with a mortgage expert who is well versed in both Shared Ownership and bad credit mortgages.
Improving Chances with Bad Credit
With bad credit, navigating a shared ownership mortgage can feel overwhelming. There are real, actionable steps you can take to improve your chances.
Here’s a list of actionable measures to consider:
- Monitor your credit score with all three bureaus to get a complete picture of where you stand with Experian, Equifax and TransUnion.
- Keep an eye on your credit reports regularly for any mistakes and correct in a timely manner.
- Maintain consistent payments on existing debts to boost creditworthiness.
- Find out how to consolidate debts for easier repayment with lower rates.
- Develop a monthly budget to manage spending and prioritize paying bills on time.
- Saving a larger deposit, ideally at least 5%, can really help improve your chances.
- Work with a specialist mortgage broker to get personalized advice and access to niche products.
1. Enhance Your Credit Score
So, improving your credit score is essential. Improve the chances with bad credit. Start by ensuring bills are paid on time and paying off existing debts.
Keep your credit utilisation low, as this has a strong positive impact on your ratings. Doing so with professional advice will help you avoid pitfalls and stay on a clear, focused path to improved credit.
2. Manage Existing Debts
Smart debt management will go a long way. Pay off high-interest loans first. Look into debt consolidation to make repayment easier and potentially save on interest.
Sticking to a solid budget allows you to monitor your spending and ensure payments are made on time, both of which improve your credit profile.
3. Save for a Larger Deposit
Many lenders agree that a bigger deposit can tip your application’s success. Establishing targeted saving goals and utilizing high-yield savings accounts will speed up this process.
Find out what government schemes are available to help you save a deposit. They can offer huge help.
4. Consult a Specialist Mortgage Broker
Specialist brokers who are used to dealing with bad credit cases can be a tremendous help. They offer personalized guidance, access to specialty mortgage products, and assistance in understanding and meeting complicated lending requirements.
These specialists increase your chance of approval and winning favorable terms.
Applying for Shared Ownership Mortgages
Finding your way through the shared ownership mortgage maze can be daunting, particularly if you have adverse credit. Fear not, our panel of experts have you covered with this charming how-to guide.
Deposit Requirements
Shared ownership mortgages typically require a smaller deposit than a traditional mortgage would. Usually you’ll require a minimum of 5% deposit of the share you want to buy.
So, if you were buying a 50% share of a home that was worth £200,000, your deposit would be £5,000. If your credit history is a little spotted, a deposit of 15-20% can strengthen your application.
Some of these schemes even help with the deposit contribution, so it’s definitely worth looking into those opportunities.
Steps to Apply
Taking the first step in applying involves a series of essential actions:
- Collect your credit reports from Experian, Equifax, and Callcredit.
- These include proof of income, bank statements, and your credit history.
- Show lenders that you can afford the monthly payments.
Research housing associations: Each has its own application process. Honesty about your financial circumstances can work in your favour.
Therefore, getting pre-approved is an absolutely vital step. It gives you a clearer picture of what you can afford and makes you feel more confident when talking to lenders.
Alternative Options for Bad Credit Borrowers
For those with bad credit, there are several alternatives to consider:
- These require a family member to guarantee mortgage payments in the event you are unable to pay.
- Family members may contribute to your deposit, strengthening your application.
- These are specifically designed to be more flexible to accommodate borrowers with insufficient credit ratings.
Usually, a bankruptcy can stay on your credit report for six years, which makes it extremely difficult to be approved for a mortgage.
There are some specialist lenders who would still look at you after a certain period of time. Lenders commonly have a preference that CCJs are older, but there are exceptions.
Frequently Asked Questions
What is shared ownership?
With shared ownership, you purchase a share of the property and rent the remainder from a housing association on an assured tenancy. It’s a more affordable alternative to getting onto the property ladder, particularly for first-time buyers. You have the option to buy a bigger ownership percentage as you go.
Who is eligible for shared ownership mortgages?
Eligibility typically involves a household income below £80,000 (£90,000 in London). Perhaps you are a first-time home buyer. Or you might be a failed former owner having a hard time with a purchase, or today renting from a council or HA.
Can you get a shared ownership mortgage with bad credit?
In short, yes, it is possible. This is because lenders look closely at your credit history and overall financial situation. Though bad credit can restrict your choices, certain lenders focus on providing mortgages to borrowers with bad credit.
How can I improve my chances of getting a mortgage with bad credit?
Go over your credit report with a fine-tooth comb and address any inaccuracies. Make all of your payments on time and work to pay down existing debt. Build up a bigger deposit. These steps increase your trustworthiness in the eyes of your lenders.
What are the benefits of shared ownership?
Shared ownership helps make home ownership more reachable by having a lower deposit. It lets you increase your share over time, so you can match your increases in income with increases in homeownership. Like other forms of affordable housing, rent is typically set at below the open market level.
How do I apply for a shared ownership mortgage?
Do your homework and find the right shared ownership home for you. Get in touch with your local housing association or other registered provider. Complete an application, showing proof of your financial condition and qualifications.
Are there specific lenders for bad credit shared ownership mortgages?
There are lenders who do have a bad credit mortgage niche. A smart move is to consult with a mortgage broker who can match you with these lenders and find you competitive rates based on your circumstances.