There’s no denying the fact that purchasing property can offer a myriad of benefits.
However, given the current market conditions, many lenders have adopted stricter regulations for property mortgages to minimise risks.
Because of this, it has become difficult for people to purchase property, especially if they have a bad credit score.
The government has implemented schemes like shared ownership to mitigate some potential issues.
So, if you are looking to enter the property market despite your bad credit, you can check out shared ownership mortgages with bad credit, which we have explained here.
Table of Contents
The shared ownership scheme has been implemented by the government to try and offer a combined scenario which allows tenants to purchase part of the property whilst paying rent on the other.
To be more precise, this scheme allows a tenant to purchase a share in a property instead of buying the entire property at once.
If you are unable to afford a mortgage loan for the whole property or provide a higher deposit, you may find the shared ownership to be beneficial.
According to the scheme, you can purchase a share that is between 10% and 75% of the property’s market value.
In such a situation, you will only need to pay rent on the share that is owned by the landlord.
For example, if you purchase 25% of a house through shared ownership, you will only need to pay rent for the remaining 75% that is not owned.
When your financial condition improves in the future, you can buy a larger share of the property if you wish.
Such a process is known as staircasing, and it allows you to gain more ownership of the property gradually. Few schemes may permit certain levels of staircasing although rare, so just be mindful of this.
Obviously, the amount of rent payable will decrease according to the share you own. And if you own 100% of the property, then you don’t have to pay any rent.
The regulations suggest that shared ownership properties should be leasehold properties. Also, the “landlords” or providers of the property are usually housing associations, local councils or other similar organisations,.
A lender will check your eligibility and financial record before approving your mortgage request for a shared ownership property.
If you wish to get shared ownership, you will need to have an annual household income that is less than £80,000. In case you live in London, the annual income needs to be less than £90,000.
Apart from that, there are a few other conditions that can determine your eligibility. So, you can apply for shared ownership if you are:
- A first-time buyer
- You cannot own two properties concurrently
- Already a shared owner that wishes to move
- A former homeowner
Furthermore, if you are above 55, you can purchase through the “old persons shared ownership” (OPSO) scheme.
A similar type of scheme exists for people with disabilities as well. They can avail of the HOLD scheme, which stands for “home ownership for people with long-term disabilities”.
Likewise, if you served in the armed forces, your offer will have a higher priority within certain schemes.
Now that you know the basics of shared ownership, let’s address the main question of this guide.
Frankly speaking, you will find it more difficult to get shared ownership mortgages with bad credit.
However, this does not mean that all hope is lost, for there are ways in which you can secure the mortgage, even with a low score. That is what we have discussed here.
Your credit report is an indicator of your financial condition, which is why lenders use this metric to approve mortgages.
A poor credit score or adverse within the report indicates low financial reliability, and vice versa. In other words, approving a mortgage for someone who has bad credit is quite risky.
Naturally, the lenders will want to minimise this risk, which is the reason why they often do not approve mortgages in such situations. With that being said, there are some specialised lenders that can help you out in this regard.
Still, there is a limit to this aspect, and if your credit score goes beyond this limit, getting a shared ownership mortgage will become increasingly difficult.
What Factors Affect Your Credit Score?
There are several aspects that can affect your credit score negatively. Some of these are repossession, bankruptcy charges, county court judgements (CCJs), defaults, and arrears.
If your credit history contains any of these issues, then most mainstream lenders will decline your mortgage.
But specialised lenders may approve your request, provided the credit issues are relatively minor or within their stated lending criteria.
For example, if there haven’t been any CCJs or defaults in the recent past, they may approve your shared ownership mortgage.
Or if your credit record has had no repossessions in the last few years, then the lender may not have any issues in offering you the mortgage.
However, if you have any of the above issues at present, then the lender may decline your mortgage.
Also, if the bad credit has not improved for a long time or if it involves large sums of money, the lender may refuse your mortgage.
Fortunately, the initial steps for getting a shared ownership mortgage are the same for everyone, regardless of their credit score.
Once you have decided on the property and the share amount, you can talk with the landlord. Potentially there may be a reservation fee which needs to be paid in order to secure the property.
The next step in the process involves consulting with the mortgage adviser. This step is crucial since it allows you to discuss your existing financial condition and credit history with a qualified professional.
Once they analyse your situation, they can suggest the best course of action. They can also refer you to a suitable lender that will approve your mortgage, despite having a bad credit record.
After everything has been finalised initially, you will have to talk to the lender.
If your credit record is bad or there are records of repossessions or bankruptcy in your credit history, you will likely need to pay a higher deposit and levels of interest.
Additionally, the lender will need you to best prove that you can repay the mortgage amount in time by underwriting your application.
Frequently Asked Questions
Besides your mortgage payments, there are many other costs that you need to make for a shared ownership property. These include the solicitor’s fees, landlord’s rent, service charges, stamp duties and management fees, to name a few.
In particular please bear in mind a level of service charge because most of the properties are leasehold.
Yes, you can sell the property you own through shared ownership at any time. If you have 100% ownership, you can sell it freely on the open market.
But if you don’t have full ownership, then you will need to inform your landlord about it and then both mutually go through the process. .
Please bear in mind there will be updated work involved when gaining a new valuation of the property since purchase, so you can calculate your % share and thus the amount you are entitled to upon sale.
Conclusion
Shared ownership mortgages can really be helpful to certain households as due to buying only a % share of the property there can often be lower deposits and reduced loan amounts. With this in mind, you can purchase properties even if you have bad credit.
If you can prove to the lender that you can improve your score and repay the mortgage amount, the request will be approved without issues.
On that note, you should always seek assistance from your landlord and mortgage advisor when you are unsure about anything to do with the process.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
I am CeMAP (Certificate in Mortgage Advice and Practice) qualified mortgage adviser with a strong background in Finance. I specialise in providing expert advice on a range of mortgage products, including first-time buyers, remortgages, buy-to-let mortgages and bad credit mortgages.
I am CeMAP & CERER qualified mortgage adviser and have helped a number of clients realise their dreams when they thought it would not be possible. I’m skilled at getting mortgages sorted for people with a history of missed payments, CCJs, defaults, debt management programmes, IVAs and bankruptcies.
