Shared Ownership of a property is when someone, usually a company such as a property developer, owns part of the property and the home owner owns the rest. For instance, if a company chooses to sell 50% of a property ownership to a home buyer, the home buyer will have to either buy the other 50% with cash upfront or get a morgage. Generally the home buyer will have the opportunity to buy the company’s share of the ownership.
Shared ownership makes mortgages much more accessible for home buyers with limited funds. If you’re a first time home buyer, you only need to borrow part of the amount the property is worth. A home owner might be in the position to buy 50% of a property worth £200K, with only 5% of half the property’s full market price. If a mortgage lender requires 5% deposit, the mortgage would be 45% of the full value of the property. The other 50% of the full value belongs to the property owner.
Here is a rough guide that will hopfully give you a clear picture. If you’re interested in a property that is worth £200K but only have £5K in a pot for a deposit, you’ll need a mortgage lender that requires 5% of deposit and agrees to lend you the other £45K to buy your first home. This means that if you decide to pay off your mortgage in 10 years, you’ll be paying £4,500 for your mortgage per year, for a period of 10 years. That’s roughly £375 per month which is a lot less than renting a bedsit in most cities and towns in the UK.
As a first time buyer, you might also be in the position to part buy, part rent. This means that you pay mortgage to the mortgage lender and rent to the property owner. But if you choose to sell your share, you could still make a profit because you’ll sell your share at market value. There are a variety of schemes available allowing affordability for first time buyers. You need to find out which suits you best and what you can afford.
If you’re a first time buyer and would like us to guide you through the initial steps of buying a home, please get in touch for a no commitment first consultation. SG
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