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Introduction
Shared ownership mortgages have been gaining popularity in recent years as a way for individuals to get onto the property ladder with a smaller deposit and a more affordable monthly payment. This type of mortgage allows buyers to purchase a percentage of a property, typically between 25-75%, and pay rent on the remaining share to a housing association or developer. While shared ownership can be a great option for first-time buyers or those with lower incomes, it is important to consider the pros, cons, and opportunities before making a decision.
Advantage
One of the main advantages of a shared ownership mortgage is the lower initial deposit required. This is particularly beneficial for first-time buyers who may struggle to save for a large deposit. In most cases, the deposit for a shared ownership mortgage will be between 5-10% of the purchased share of the property. This can make homeownership more accessible and achievable for those who may not have been able to afford it otherwise.
Another advantage of shared ownership is the more affordable monthly payments. Since the homeowner is only paying a mortgage on their share of the property, the monthly payment will be lower compared to purchasing the entire property. This can be especially helpful for those with lower incomes or who are looking to reduce their monthly expenses. Additionally, many shared ownership properties are newly built or in good condition, meaning there may be less maintenance costs for the homeowner.
Drawback
One of the biggest drawbacks of a shared ownership mortgage is the limited flexibility. As the homeowner only owns a portion of the property, they may have less control over decisions such as renovations or selling the property. This lack of control can also affect the homeowner’s ability to make changes to the property, such as renting it out. In some cases, there may also be restrictions on who can purchase the remaining share of the property, potentially making it difficult to sell in the future.
Another potential downside to shared ownership is the additional costs involved. In addition to the mortgage payment, homeowners will also have to pay rent on the remaining share of the property, which can increase over time. There may also be service charges and ground rent to consider, as well as any associated legal fees. It is important for homeowners to carefully consider all of these costs before committing to a shared ownership mortgage.
Despite some of the drawbacks, there are also opportunities that come with a shared ownership mortgage. For example, many housing associations offer the opportunity to ‘staircase’ or buy additional shares in the property, allowing homeowners to gradually increase their ownership percentage. This can ultimately lead to full ownership of the property if desired. There may also be the option to buy the remaining share of the property at a later date. These opportunities can be particularly beneficial for those with a fluctuating income or who may see an increase in their earnings over time.
Shared ownership mortgages also have the potential to provide stability for homeowners. As long as the monthly payments are consistently made, the homeowner will have security of tenure and can stay in the property for as long as they choose. This can be reassuring for those who may have previously rented and experienced the uncertainty that comes with a periodic lease agreement.
Conclusion
In conclusion, shared ownership mortgages have both pros and cons that need to be carefully considered before making a decision. While the lower deposit and more affordable monthly payments can make homeownership a reality for many, the limited control and additional costs must also be taken into account. However, with the opportunity to increase ownership percentage and gain stability, shared ownership can be an attractive option for those looking to get onto the property ladder. It is essential to thoroughly research and consider all factors before committing to a shared ownership mortgage to ensure it is the right choice for your personal situation and financial goals.
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