The home ownership dream can seem more out of reach than ever, with mortgage affordability rules making the home-buying process more complicated. And ever-increasing house prices mean that many hopeful homeowners usually have to find larger deposits than before.
According to the Nationwide House Price Index, the average UK property price in October 2015 was £196,807 – up from £173,678 in October 2013 (a rise of 13.3 per cent). On a mortgage that offers 90 per cent loan-to-value (LTV), this means finding a deposit of nearly £20,000, with estate agent and legal fees on top of that too.
So what for the hopeful at the foot of the property ladder? One potential solution is part-own, part-buy – Shared Ownership. A step that yours truly took a few years back and have never regretted.
With shared ownership, you need only get a mortgage (and thus find a deposit) on the share of home’s value you’ve bought – usually a minimum of 25%, up to around 75% – and pay rent to a housing association on the rest.
In most cases only 5% deposit is required as a minimum. You can usually ‘step’ up at a later date, buying further shares up to the full 100% of its value.
Generally speaking, shared ownership properties are new build homes, or they can be previously owned shared ownership homes.
Keep an eye on your spending
As well as finding a deposit and all the regular costs associated with home ownership, bear in mind that with Shared Ownership you’d also be responsible for service charges (if a flat in a block) and a regular rental payment.
Mortgage affordability rules were introduced to help prevent borrowers from struggling in the event of an interest rate rise, and Shared Ownership mortgages are no different.
Lenders will look closely at your income, outgoings and savings each month to check you can cope if your credit repayments increase.
Another option for those with a low deposit is the Help to Buy ISA. This was launched in December 2015, and allows first-time or existing buyers to get onto, or move up, the housing ladder with as little as a 5 per cent deposit.
Depending on your circumstances and the property you are trying to buy, such as a new build, the Help to Buy scheme can help you with an equity loan or mortgage guarantee.
For example, if you’re a first-time buyer and save up to £200 a month with a Help to Buy ISA, the government will boost your savings by 25 per cent. That’s a £50 bonus for every £200 you save.
The mortgage lending process
Things lender will consider when deciding whether to approve your mortgage application include:
– The information in your application form
– The amount you want to borrow and size of your deposit
– Your monthly outgoings and spending habits
– Their own policy rules
– And the information on your credit report.
Checking your credit report before you make a mortgage application can allow you to see what lenders see, and can give you the chance to update any inaccuracies and correct and out-of-date information.