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Shared ownership mortgages

Shared ownership mortgages are aimed at helping potential first time buyers to get on the property ladder, as this is increasingly becoming an almost impossible task for many. According to recent figures, only around 1 in 10 new buyers are currently first timers - but just because you can’t afford to buy the whole of the house, that doesn’t mean you can’t get your foot on the first rung! Buying with friends or family can be a practical way to start, especially in a market of increasing house prices.

The pros of shared ownership mortgages

The good news is that more and more people are deciding to purchase a property together.

• That’s because the more people involved in buying a property means that you’ll have a bigger pool of money to put towards paying a mortgage.
• Monthly repayments can be much more affordable if they are spread between more applicants.
• It’s also easy to find a mortgage that will accept your application, as experts at Moneyfacts.co.uk estimate that over 60% of UK mortgage lenders will accept an application from up to four individuals.

But if you decide that buying a property with friends is for you, remember there is a lot to think about.

The cons of shared ownership mortgages

• You have to make sure that you are comfortable enough with the thought of living with your friends and family.
• Trust is vital when it comes to shared ownership.
• For the majority of mortgage deals, you may have to commit to a property for a minimum of two years – which can be a long time to bind yourself to.

Case Study: Liam from Moneyfacts

“Because getting on the property ladder is virtually impossible with current house prices rocketing, buying a house with my best friend seemed the only way to go. With the help of Moneyfacts mortgage search, we spoke to a financial adviser and bought a £140,000 2-bedroom property last August, taking out a two year fixed rate deal. This was great for us because we knew exactly how much we’d have to pay each month.

We are already seeing the benefits – one year on and houses on our street are touching £160,000. If shared ownership is for you, make sure you think about all the added extras though. Gordon Brown’s stamp duty is a particular nasty, so are solicitor’s fees and surveying costs, not to mention the expense of decorating the property when you move in!”

If a shared ownership mortgage is for you, work out:

• How much deposit (if any) will be paid by each co-buyer
• How much each of your mortgage payments will be
• All the other associated costs of buying a house such as stamp duty, solicitor’s fees, surveyor costs, council tax and buildings insurance.
• It could also be worth setting up a joint bank account for all your home expenses, such as bills and other payments.

The deed of trust

Before signing on the dotted line however, it is essential that you get all the legal documents drawn up first, the most important being a deed of trust.

• This states exactly what proportion each you will own of the property and what happens if relationships break down or if one of you dies.
• It will also include how much notice must be given for you to buy out the other's share of the property or when you want to sell it
• As well as how the profits will be split upon sale.

Buying a house with friends or family can be the first step onto the ladder, but remember that it can also mean less stability on the climb up, so make sure that you're aware of all the potential pitfalls before finally taking the plunge.

What to do next:

• Search for a mortgage
• Use Budget calculator to work out how much you can afford to spend
• Compare the market to find a cheap mortgage deal