Shared ownership mortgage?

BM5118

Evening MSE

Its a struggle to word this so thanks for bearing with me!

I think I want a shared ownership mortgage. No via a government scheme though. Whenever I google shared ownership mortgage I just seem to get government schemes.

In short:

I want to buy 50% of a house, and a family member by the other 50%.
We would both live in the house as roommates, splitting bills etc etc.
We have different deposits and very different salaries.

Ideally I would like to take out a 10 year mortgage and something that allows overpayments.
The other family member wants to stay in that house for ever and is looking for a 25+year mortgage.

I'm not really after advice on whether this arrangement is sensible/wise/tax issues etc, I'm wondering does this mortgage type exist? perhaps under a name I'm not aware of?

...Or if it doesn't exist anywhere but my head, do we need a joint mortgage and we then setup some personal arrangement between ourselves?

Thanks in advance

[Deleted User]

Sounds incredibly complex, but a very interesting idea!

I doubt it’ll be possible - a normal mortgage with necessary legals drawn up I’d imagine - particularly with regard to what happens if one of you want to move out early (is the family member obliged to buy your share etc). Can be informal, but legals are often suggested.

Sounds obvious, but as you want such different terms, are you sure it’s the right thing to do?

If, for example, you want to move out in 6 years - house prices have risen, brilliant - but your family member can’t get a mortgage to buy you out (transfer of equity) and doesn’t want to sell up and move - what happens then? You’d be looking at essentially a ‘let to buy’ deal - wanting/needing to purchase a new place with minimal deposit (since you can’t use your built up equity yet) and also having the liabilities for your current house being factored in by many companies (whether you live there or not) - which could hamper your affordability. Would family member be amused if you wanted to chuck a random tenant in there to cover the costs - I doubt it!

Who pays any Early Repayment Charges if you can sell/re-mortgage because one wants to move out. If you had, say, a 10 year fix and wanted to move after 4 years that’s a hefty sum in ERCs

Buying together is great in principle, especially to help with affordability - getting a much better property perhaps than you’d manage on your own (same for your family member) - but too many pitfalls IMO. Even joint mortgages (couples/married etc) can turn out to be a pain - let alone 2 (presumably?) single people who could have such a significant change in circumstances

nkomp18

Also if someone defaults, the bank cannot repossess half a house. I don't think such mortgage exists

BM5118

Thanks for your thoughts guys.


I completely agree only 1 mortgage on a property makes sense. From a little reading it sounds as though a mortgage is first in the queue of debts secured on a property, which presumably is why its the cheapest/most secure way of borrowing.


How do shared ownership schemes with the government work?


Presumably only one mortgage from the buyer, and the seller may have other debts secured on their share which are not technically mortgages. Or perhaps being a government body scheme it is backed by some government guarantee should it go tits up!?!?

MortgageMamma

A shared ownership scheme is when a person, or a few people buy a share of a property from a housing associate. Common terms are 50% ownership/50% rent and you have the option to buy the whole property when you can afford it.

The government help to buy scheme is where a first time buyer takes an equity loan from the government which becomes repayable in future. So you would borrow a % off the government, and have your own finance put in place.

There are schemes available where more than two people can buy a property. If there is a family connection there are several products available to facilitate this. Assuming you had the right deposit, you could set up the mortgage on a tenants in common basis each of you owning a specific % of the property. However there are risks with this. You want to exit the mortgage at a specific point in time. It may not be possible for you to do so for the following reasons

1, House prices fall and you are in negative equity and the joint mortgage holder does not have savings to "buy you out"
2, you are not in a financial position to buy another house
3, the joint mortgage holder is not in a financial position to buy you out
4, You are unable to sell the property

Its important to realise that you are BOTH responsible for 100% of the mortgage payments. So if one person defaults on the mortgage payment the other person would be sought to recover the loss.

I think you need to sit down with an experienced mortgage adviser and discuss your plans fully before either of you commit to anything

Bermonia

Mortgage Lenders would always want to have a ‘first charge’ secured on your property - as already said it gives them first dibs on proceeds of house and also allows them to force the sale should you fall behind on payments. Obviously 2 lenders cannot both have a ‘first charge’ over the property and as such this would not be feasible.

Most realist option if you are determined is to get a joint mortgage - would suggest around the 25 yr term the other party wants, most mortgages allow up to 10% per year over payments, plus you can lump sum pay as much as you want once your introductory offers expires. Speak with a solicitor first and make sure you draw up a contract between you both clearl outlining potential scenarios - although with family this not always straightforward as I am sure you will already be aware.

Just think long and hard about this arrangement first as if you both want different things there may be little or no common ground to come to an agreement - makes more sense to buy, live together for a few years but have a plan to sell up at a certain point and use your proceeds accordingly.