For a lot of people, owning a home is a sign of financial stability and personal achievement.
However, with rising property prices, high inflation and high-interest lending criteria, achieving this milestone can be a challenge, especially if you battle with a less-than-perfect credit score.
Fortunately, the government’s shared ownership scheme provides a gateway to homeownership for those facing such hurdles, potentially even for individuals confronting the additional challenge of bad credit.
Understanding Shared Ownership
What Is Shared Ownership?
Shared ownership is a government-backed program that allows individuals to purchase a portion of a property – typically between 10% and 75% – and pay rent on the remainder. This approach makes acquiring a home more accessible by reducing the need for a large deposit and a substantial mortgage, easing the financial burden on the buyer.
Benefits Of Staircasing
An attractive feature of shared ownership is ‘staircasing,’ which affords homeowners the opportunity to gradually increase their share in the property over time. As you acquire more of the property, the proportion of rent you pay diminishes, eventually leading to outright ownership if you wish to take it that far.
Eligibility for the Shared Ownership Scheme
To be eligible for shared ownership, applicants must have a household income of less than £80,000 (£90,000 in London).
Priority is given to first-time buyers, people who used to own a home but can no longer afford to buy, or existing shared owners. The scheme includes provisions for older people (OPSO), those with long-term disabilities (HOLD), and Armed Forces personnel, acknowledging and addressing the varied needs of potential homeowners.
Shared Ownership and Bad Credit
Obtaining any form of mortgage with a tarnished credit history is tough.
Lenders perceive bad credit borrowers as high-risk, leading to stringent borrowing conditions or outright disapprovals. Nevertheless, getting a shared ownership mortgage with bad credit is possible but can be difficult. So here are a few tips to consider.
How to Get Shared Ownership with Bad Credit
Shared ownership schemes are a real opportunity for those whose credit scores aren’t pristine. The process starts with a clear understanding of what you can afford – not just the initial share purchase but the ongoing commitments of mortgage and rent payments.
It’s essential to be upfront about your credit issues when discussing your circumstances with a mortgage adviser. The right adviser should have experience in bad credit cases and can steer you towards lenders who take a more empathetic view of your financial history.
But handling bad credit doesn’t just stop at finding a lender; it involves several steps, which weh ave outlined below.
Improving Your Credit Score
Enhancing your credit score should be a priority if you’re considering shared ownership. Simple actions like registering for the electoral roll, paying bills on time, and reducing your debt levels can improve your credit score over time. It may delay your property purchasing plans while your score improves, but the long-term benefits of securing a more competitive mortgage product make it worthwhile.
Seeking Expert Financial Advice
Consulting with a financial advisor or mortgage broker who specialises in bad credit cases can provide a clear understanding of your options. These experts will help you to navigate the complexities of mortgage products suitable for your specific situation and prepare you for the application process. They can also offer valuable advice and strategies to improve your odds of approval for a shared ownership scheme.
Exploring Alternative Lenders
Traditional lenders might be hesitant to approve a mortgage for bad credit applicants. However, alternative lending institutions and specialist lenders often provide more flexibility. They are willing to consider applicants with adverse credit histories.
Be mindful that the interest rates and fees may be higher compared to conventional lenders, as these companies take on higher risks.
Government Aid and Support Schemes
Several government schemes are available to help those with bad credit purchase a home. For instance, you might be eligible for specific equity loans or rent-to-own programs that could be utilized in tandem with shared ownership. Familiarize yourself with these schemes, as they may offer the resources needed to secure a mortgage, even with an imperfect credit history.
Additional Costs and Considerations
When considering shared ownership, it’s paramount to account for additional financial commitments that come with this type of property.
- Service charges for communal area upkeep and building maintenance are almost always a part of shared ownership schemes and are typically non-negotiable.
- Management fees also apply, which cover the administration costs of the shared ownership scheme.
- Furthermore, potential costs, such as ground rent or major works for building renovations, must be factored into your budget.
These can significantly affect monthly outgoings and should be clearly understood before committing to shared ownership, as they will persist alongside your mortgage and rent obligations.
Selling Your Shared Ownership Property
The need to sell a shared ownership property can arise from various changes in personal circumstances, be it relocation, financial downfalls, or simply the desire to move on.
If you’ve not yet staircased to 100% ownership, the process involves informing the housing association or landlord, as they often have the ‘right of first refusal.’ This means they can find a buyer who fits the criteria for shared ownership. The process is thereby more complex and potentially lengthier than selling an entirely owned property.
If you’ve become the outright owner, selling the property is akin to selling any other freehold property with the freedom to set the price and choose your sales channel. However, it’s important to remain aware that any appreciation in the property’s value may mean a larger sum to pay back if you secured government aid during the purchase. Careful planning and professional advice will ensure you navigate these complexities effectively.
Final Thoughts
While the path to homeownership can be challenging especially for many UK citizens with bad credit, shared ownership presents a feasible alternative to the traditional buying process.
Offering a more manageable entry point, it can pave the way towards eventually securing full property ownership. Along with the possibility of improving your credit score and the availability of specialized advice and lending options, diligent research, and responsible financial planning can make the dream of owning a home a reality.
It’s important, however, to approach this opportunity with careful consideration of all the associated costs, conditions, and long-term financial commitments. As with any major financial decision, it is crucial to weigh the pros and cons and ensure that the obligations of shared ownership align with your personal and financial circumstances.
