Shared ownership - help!

alynns

My friend is on a first buyer mortgage which is one of those 80/20% shared ownership deals. They are 9 months into a 2 year deal at the moment and their relationship has broken down. If they sold now, they would owe money so I wanted to ask if these could be options:

• He keeps it and pays the whole amount (he can but he wouldn't get the mortgage on his own merit so can't take her name off and will re-evaluate at the end of the 2 years i.e. might be able to sell and break even)
• She keeps it, gets a lodger and they keep both names on it until the end of the 2 years and then sell
• Another option is that they both leave and rent it but I think that is against the terms of the 80/20 deal so the least likely option

Basically, is it illegal to do these things even if the mortgage continues to be paid in full for the 2 year term? If he goes for option one, he would have to change the direct debit from a joint account to his sole account. Would this raise flags?

I really don't know how to advise.

poppysarah

Option 4 - counselling to work at their relationship?
If they bought a house together they were presumably very committee at some point.

alynns

poppysarah wrote: »

Option 4 - counselling to work at their relationship?
If they bought a house together they were presumably very committee at some point.

And option 5 (I forgot to say), is that they have to live as housemates for a while?

kingstreet

Is it shared ownership or shared equity?

80/20 sounds more like the latter. Are they paying rent on the bit they don't own?

alynns

kingstreet wrote: »

Is it shared ownership or shared equity?

80/20 sounds more like the latter. Are they paying rent on the bit they don't own?

It's one of those government shared ownership schemes and I think he referred to the 20% as a "loan" while the rest was mortgage. Does that make no sense? I just know they wouldn't break even at this point.

alynns

I know that the amount they owe is £175K. He earns £24K and she earns £21K so clearly, neither can legally take that amount on individually. However, he has savings and could scrape through until the end of the 2 year period and she could do it if she took on a lodger. Do mortgage companies care as long as it gets paid?

kingstreet

alynns wrote: »

It's one of those government shared ownership schemes and I think he referred to the 20% as a "loan" while the rest was mortgage. Does that make no sense? I just know they wouldn't break even at this point.

It's not shared ownership, it's shared equity.

The difference is significant for them.

Shared ownership means a leasehold property with a housing association as the freeholder. The lease may specifically prohibit subletting and if asked, the HA would probably reject a request to sublet the property, preventing them using the third option in the opening post.

Under shared equity, the property is freehold, with the equity loan secured by a second charge over the property. The property is 100% owned by the borrower, nothing is owned by a third party.

As there is no lease involved, there is no automatic prohibition on subletting, although the charge may have a clause requiring permission to sublet be obtained. The borrower should have a look at their purchase paperwork to establish their individual position.