Questions on shared ownership mortgages and selling a shared ownership property

jjamestyu

Im looking at a shared ownership property and had a couple of queries related to the mortgage and the resale of the property at a later date.

A) Im struggling to get my head around why one would go for a shared ownership property over a traditional mortgage.

As i understand you still need to be able to show the affordability of both the mortgage and the rent.

So if it was a £250k property, with 50% ownership, 50% rent, with a 10% deposit. You would need to show somewhere in the region of £50k pa earnings. (£50k pa being 50k*4.5 = 225k + 10% deposit = 250k).

If the affordability calculation also takes into account the rent, why would you go for a shared ownership property. Wouldn't you be better off with a standard mortgage 90%, with a 10% deposit as this would give you more flexibility ? Is there something im not getting here ?

b) What are the resale prospects like on a shared ownership property ?
Are they harder to sell ? Will it be an issue if for my next place im looking for a standard mortgage, and entering into a chain ? Can i sell the owned part back to the landlord, and are they under any obligation to buy it back ?

haras_nosirrah

I am a shared ownership specialist on the panel for two housing associations.

Your calculations are flawed. The main difference is that on the 50% of the 250k property the mortgage would be based on 125k not 250k

There is a lender who does 100% shared ownership mortgage and no stamp duty up to 500k so the property could be purchased for just 2k in approx purchase fees.

On the mortgage side on a mortgage of 225k the lender calculates at around a 6-7% interest to determine affordability.

On the shared ownership the mortgage part is based on the same calculations but the rent part is on face value so the affordability is much more generous even if the monthly payment is similar

Someone may not be able to afford the mortgage on the 250k property according to the lender but could afford the mortgage on the 125k share plus 200 a month rent

jjamestyu

Thanks Haras

Is there affordability criteria for the rent portion ?

Would the rent payments need to be deducted from the total available house hold income used for mortgage purposes ?

jjamestyu

Wondered if you had a chance to review my follow up question ?

haras_nosirrah

Apologies I didn't see it.

On the assessments I do the mortgage (based at 5%) rent and service charge and any debt commitments, childcare, maintenance etc cannot he more than 45% of take home pay with the mortgage maxed out at 4.5x salary

cjv

I found this calculator useful when I started looking at shared ownership:

https://assets.publishing.service.gov.uk/media/58d55b72e5274a06b300000e/Shared_Ownership_Sustainability_Calculator_-_June_2017__FINAL_.xls