Affordability and Shared Ownership

alou

Hi all,

My partner & I are looking at getting a mortgage within the next 2/3 years and are currently exploring everything that is out there at the moment.
We currently earn £50,000 between us.
I have seen a property for £350k, which is above what we can afford, but a 50% share would make it £175k. 4.5x our salaries is £225k so on paper we can get this (I understand there is rent payments on top of this). When applying for a shared ownership mortgage, would they take into account the full property price or just the share you are wanting to purchase?

I hope this makes sense!

princeofpounds

The mortgage lender will perform some affordability calculations, so they will be fully aware that you have to pay some rent on top of your mortgage payments. They aren't going to offer you a mortgage at the 'normal' maximum multiple of your salary as they know it would be tough to service it. So they aren't going to judge it based on just the 50% share you intend on buying.

If you plan to get into SO schemes, make sure you fully understand how ground rent works, how service charges work (in new builds they usually escalate quite quickly in the first few years), how rental escalations work, and also (if a flat, which is likely) how leases work and lease extensions for shared ownership in particular (i.e. you have no right to have one!). 

AdrianC

You make no mention of how much equity you have saved, or think you will be able to save in the next few months.

rachlikeswinter

I'm buying SO so I have some experience of this; and I echo what people have said above about reading fine print of service charge, how much rent will increase each year, and getting a sizeable deposit. Don't get drawn in by 'you only need 5% deposit' - your outgoings will be massive.

The lender assesses you for affordability based on the mortgage amount you're requesting and what that means for your monthly expenditure income vs outgoings, so they take the rent portion into account too. So for example, let's pretend your monthly mortgage payment would be £500, and your rent and service charge (if buying a flat) would be £600 pcm, and you also have other outgoings such as a car loan or credit card repayments of £400 pcm, they say ok can this couple afford £1500 pcm based on their salaries (plus yearly ground rent), including a 'stress test' whereby interest rates could go up.

Incidentally, housing associations/developers only let you purchase shared ownership if your rent + mortgage + loan/credit commitments etc payments are no more than 45% of your income. HIGHLY recommend you have no credit commitments when you come to apply as it reduces affordability greatly. Lastly - SO mortgages are almost always a higher % interest rate than 'normal' mortgages. 

Hope that helps! Also goes without saying that shared ownership properties are always new builds (unless they are resales) but not all new builds can be bought using shared ownership.