100% Shared Ownership Mortgages
Everything you need to know about a 100% Shared Ownership mortgage without a deposit
Firstly, are you looking to purchase a shared ownership / shared equity property?
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Shared Ownership mortgages can be a very attractive option if your budget won’t yet stretch to full ownership of a house or flat, but what if you haven’t got enough cash set aside for a deposit either?
In this article we’ll explore the options that may be available, including which lenders offer 100% loan-to-value (LTV) shared ownership mortgages, what you need to do to qualify for one and why professional advice is always a must if you want to go down the Shared Ownership route with no deposit.
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Can you get a 100% LTV Shared Ownership mortgage?
The good news is that it’s possible — but very few lenders offer them and you will also need to find a housing association that is comfortable with the arrangement. Most housing associations insist on at least a 5% deposit, so be sure to check this detail early in the process to avoid disappointment later on.
The handful of lenders that do offer 100% LTV Shared Ownership mortgages is limited to broker-only deals at the moment, so it’s essential that you work with a specialist adviser who has solid experience in arranging Shared Ownership mortgages for clients like you who don’t have a deposit.
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100% of what?
It’s important to stress that “100% Shared Ownership mortgage” in this context refers only to the loan to value (LTV) ratio of the share you’re purchasing and not to the size of the share itself. This makes it exactly like any other no deposit mortgage, but the percentage is only applied to the share of the property you’re buying instead of its full market value.
People also use the term ‘100% Shared Ownership mortgage’ to mean one that gives you the ability to ‘staircase’ up to full ownership by buying more shares later on, so if you’re looking for information on this process, see the recommendations in our comprehensive guide.
A more accurate term for the type of mortgage you’re after is therefore a “100% LTV Shared Ownership mortgage”, but you’ll see both terms used when talking about no-deposit Shared Ownership products. This can be confusing, so here’s a quick refresher on how it works in practice.
How it works
Say you want to buy an 80% share of a flat from your local housing association. They’ve valued the entire flat at £200,000, so you’d be purchasing your 80% share for £160,000. That £160,000 is the figure that a lender would use to establish the LTV ratio, which is in turn modified by any deposit you might offer to pay.
If you don’t pay any deposit at all, the LTV will be expressed as 100% because the mortgage covers the entire 80% share. The remaining 20% of the purchase price is covered by rental payments and therefore doesn’t affect the mortgage size.
Most lenders ask for a deposit of at least 5% of the value of your share: in this case 5% of £160,000 would equate to a deposit of £8,000. That makes a LTV of 95% because the mortgage covers 95% of the value of the share. A 10% deposit meanwhile would be £16,000, or a LTV of 90%, and so on.
Who is eligible?
You won’t have to meet any unusual eligibility criteria to qualify for a 100% LTV Shared Ownership mortgage, but with so few lenders to choose from, getting the application right the first time is absolutely crucial. An experienced broker will be ideally placed to guide you through the process and will make sure your application is as strong as it can possibly be before you send it off.
All lenders want to be confident that borrowers can afford and be relied on to repay them, and unfortunately having no deposit immediately puts you at a disadvantage as it means borrowing a larger amount without the security of a significant cash sum. However a good broker will know which lenders are generally more comfortable with this scenario than others.
So how can you prove that you’re a reliable borrower when you don’t have a deposit? Each lender will have its own blueprint for the “perfect customer” and the more closely you resemble this fictional character, the more generous they’re likely to be in what they’ll offer.
The standard eligibility criteria usually include:
- Your credit rating
- Your income and outgoings
- Your income type (e.g. employment, self-employment, pension, dividends etc)
- The type of property you’re buying and its state of repair, as well as the floor level if it’s a block of flats.
- Your age
When you’re applying for Shared Ownership without a deposit there are some extra hoops you’ll have to jump through to qualify for the scheme. Housing associations have eligibility criteria of their own and not having a deposit will be a red flag for many. This is yet another reason why you’ll need the support of a professional advisor who can help to make the case on your behalf.
Housing associations will also want to know about:
- Your job: some sellers specify who can apply (e.g. key workers), others don’t.
- Where you live now: you may need an existing connection to buy in a specific area
- Your income: this is capped at £80,000 nationally or £90,000 in London
- The property type: some schemes cover new builds only, others are more flexible
- Your purchasing history: you won’t be eligible for the scheme if you own another property and some housing associations only sell to first-time buyers.
How to apply
Your first step should be to find a mortgage broker with experience in this area as this will boost your chances of getting approved at 100% loan-to-value.
Using our free broker-matching service you can speak straight away to the right mortgage broker by simply making an enquiry online. They’ll be able to help with:
- Readying all of the correct paperwork
- Downloading your credit reports
- Finding the right lender and securing the best deal for you
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Which lenders offer them?
There are only a small number of lenders who are known to offer 100% LTV Shared Ownership mortgages, these include:
- Kent Reliance
All three are specialist providers – and of the three, only Together works directly with the public – so to get the best possible deal you’ll need to work with a broker who has experience both of Shared Ownership applications and of helping clients with no deposit.
It’s worth bearing in mind that lenders do switch up their portfolios from time to time, so it’s always possible that a mortgage product could be added or removed from a given provider’s range.
Things to consider
There are a few further things to be aware of if you’re considering this type of borrowing. First, a downside of applying for such specialist products is that they’re by nature less competitive: with so few lenders operating in this market, you’re unlikely to have much choice in the deal you accept.
There are also some restrictions on all Shared Ownership arrangements to be aware of: for example you cannot apply for a guarantor mortgage for this type of purchase, which means you won’t be able to provide this extra security to bolster your application even if you have it.
Shared Ownership mortgages are also less flexible in how they can be repaid, for instance there are no interest only deals offered on these arrangements.
Finally, a 100% mortgage of any type carries higher charges including steeper interest rates because it’s a bigger risk for the lender. And when you combine those higher repayments with the rental charges you’ll also need to cover, this could mean a hefty monthly payment. You’ll also be at greater risk of negative equity, especially when market conditions are turbulent.
If ready cash now is your biggest obstacle and you don’t want to delay your application while building up savings, you may be able to apply for other types of ‘no deposit’ mortgage on a full ownership basis. These could include:
- Guarantor mortgages where a family member or close associate commits to ‘bail you out’ if you can’t keep up repayments. Because of the additional peace of mind this gives to the lender, some will consider making no-deposit offers.
- Using a gifted deposit from a benefactor such as a family member or in rarer cases the vendor or property developer, if this is acceptable to the lender.
- Releasing equity from another property if you have one and can do so at an acceptable cost.
- Using Credit cards or loans: If the deposit you’re raising is fairly small and you don’t have other significant debts, a lender may accept a deposit financed by one of these methods, but many will be turned off by the prospect of further borrowing to raise a downpayment, and will want to know exactly how you plan to repay that debt on completion.
Options with a small deposit
If you’re able to raise some funds now, Shared Ownership may still be a good option for you as the deposits can be very small depending on the market value of the property and size of share you buy. You could also look into purchasing a smaller share:
- Pay a small deposit: if you can stretch to just a 5% deposit you’ll get access to a much wider range of options, and yet more if you can go to 10%. Almost all lenders offering Shared Ownership mortgages will accept deposits of this size.
- Go for a smaller share. If you can afford to put down a deposit on a smaller slice of the property (say, 25% versus 50%), this could make better long-term financial sense than taking out a bigger mortgage on a larger share.
You are purchasing a flat with the full market value of £200,000.
With a 50% share and no deposit, assuming an interest rate of 5% you’ll pay £526 per month on mortgage repayments and £229 on rent. Both rent and mortgage are calculated on 50% of the property. That’s a combined monthly cost of £755.
With a 25% share and a 5% deposit of just £2500, assuming a reduced interest rate of 4% you’ll pay £237 per month on mortgage repayments and £343 on rent, resulting in a combined monthly total of £581.
So even though you’d pay more in rental charges with a smaller share, the total monthly cost would be lower, which could put you in a stronger position to buy more shares later on. You could consider taking out a Lifetime ISA to help you save.
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What if you have bad credit?
Having some bad credit on your record doesn’t have to mean game over for your home ownership dreams, but the pool of lenders who’ll accept you is likely to be smaller depending on the severity of the adverse credit and how recent it was.
Because there are already so few lenders offering 100% LTV mortgages for Shared Ownership, it could be very difficult to get a good deal with significant bad credit, so getting the support and advice of an expert broker will be essential if you want to pursue this option.
Speak to a 100% LTV Shared Ownership specialist
Whether you’re still undecided about whether to go for 100% LTV Shared Ownership or you’ve done your research and are raring to go, speaking to the right broker now will provide the knowledge and support you need to take the next steps.
Drawing on our network of experienced and highly-rated mortgage advisors, we can match you with a broker who specialises in arranging no-deposit Shared Ownership deals for customers like you. Get in touch today for a free, no-obligation initial consultation by calling 0808 189 2301 or make an enquiry and we’ll be in touch soon.
Speak to a Shared ownership expert
Maximise your chance of approval with a dedicated specialist broker
Selling a Shared Ownership property can be a bit more complicated than a standard sale if you don’t own 100% of the shares, but is not usually more difficult to find a buyer, especially if you live in an area where they are in high demand. If you have staircased up to 100% ownership the process will be a lot easier as you’ll own the entire property. Don’t forget it may take longer to climb to 100% if you don’t put down a deposit, as you’ll be paying higher interest rates.
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