When I first came across shared ownership mortgages, I found them to be a unique and affordable option for homebuyers, especially in areas like Blackpool, where the housing market can be daunting. Blackpool, with its rich history, coastal charm, and rising demand for housing, presents an ideal environment for exploring this type of mortgage. In this article, I’ll dive deep into shared ownership mortgages, explain how they work, and guide you through the details of what makes this option viable for those looking to purchase property in Blackpool.
Table of Contents
What is Shared Ownership?
A shared ownership mortgage is a government-backed scheme designed to help people who cannot afford to buy a home outright. Under this scheme, buyers purchase a share (usually between 25% and 75%) of a property and pay rent on the remaining share. Over time, buyers can choose to purchase more shares of the property, a process called “staircasing,” until they own the property outright. This option helps first-time buyers, those with limited savings, or those on lower incomes access the property market without the need for a large deposit or the full purchase price of a home.
In Blackpool, a town known for its vibrant tourism industry, its population faces a mix of housing challenges. While some parts of the town have seen property prices rise due to increasing demand, there are still many areas where affordable housing is limited. Shared ownership mortgages provide a solution, enabling residents to get onto the property ladder even if full ownership is beyond their immediate reach.
How Does Shared Ownership Work?
Shared ownership mortgages typically involve a partnership between the buyer and a housing association or local authority. The buyer purchases a share of the home and the remaining portion is owned by the housing association or the local authority. The monthly payment consists of two parts: a mortgage payment for the buyer’s share and rent for the portion of the home still owned by the housing association.
Let’s break it down with a simple example:
Imagine you want to buy a house in Blackpool priced at £200,000. Through shared ownership, you may be able to purchase 50% of the property, meaning your share would be £100,000. You would then secure a mortgage on that £100,000 share, and pay rent on the remaining £100,000, which is still owned by the housing association.
If the rent on the remaining share is £400 per month, your total monthly payment would be the combination of your mortgage and rent. The exact amount you would pay for the mortgage depends on the loan terms you can secure, but let’s assume the mortgage payment is £350 per month.
In this case, your total monthly payment would be £750 (£350 mortgage + £400 rent). As you save more and your financial situation improves, you have the option to buy more shares of the property, which reduces your rent payments. This is known as staircasing, and it’s an important part of how shared ownership works.
Benefits of Shared Ownership in Blackpool
- Affordable Entry to the Housing Market: Blackpool, like many parts of the UK, has seen an increase in housing prices, making it difficult for first-time buyers to purchase homes. Shared ownership helps bridge this gap, making it more affordable to enter the property market.
- Lower Deposit Requirements: A major benefit of shared ownership is the lower deposit requirements. Typically, you only need to save for a deposit on the share of the property you’re buying, which is usually between 5% and 10%. This is much more manageable compared to the 20% deposit required for a full mortgage.
- Flexibility in Buying More Shares: Shared ownership allows you to gradually increase your ownership percentage as your financial situation improves. This gives you the flexibility to take your time and buy more shares when it makes sense for you.
- Long-Term Financial Benefits: Over time, shared ownership can be a good way to build equity in a home without committing to the full cost upfront. As property values increase, your share of the property may also appreciate, allowing you to sell it for a profit when you’re ready to move on.
Considerations and Drawbacks
While shared ownership offers several benefits, it’s important to consider the potential drawbacks. Understanding these limitations is crucial to making an informed decision.
- Ongoing Rent Payments: Unlike buying a home outright, you will still have to pay rent on the portion of the property you do not own. This means that you will have a higher monthly payment compared to a traditional mortgage. While the rent is typically lower than market rent, it’s still an ongoing expense.
- Limited Property Choices: Shared ownership properties are often limited to specific areas or developments managed by housing associations. In Blackpool, this means that the available properties may not match your ideal location or house style. However, there are still options available in various parts of the town.
- Restrictions on Selling or Renting: If you decide to sell your shared ownership property, you may have to follow specific guidelines set by the housing association or local authority. You may not be able to sell the property on the open market immediately, as the housing association usually has the right to find a buyer for your share first. Similarly, renting out the property may also be restricted.
- Staircasing Can Be Expensive: While staircasing allows you to gradually increase your ownership, the process can be costly. Each time you purchase a larger share, you’ll need to secure additional funding, which may involve higher mortgage payments. This process can become financially challenging if property prices rise significantly.
The Cost of Shared Ownership in Blackpool
Let’s take a closer look at the financial aspects of a shared ownership mortgage in Blackpool. Consider the following example:
- Property Price: £200,000
- Your Share: 50% (£100,000)
- Deposit: 5% (£5,000)
- Mortgage Amount: £95,000 (after the deposit)
- Rent on Remaining Share: £400 per month
- Mortgage Payment: £350 per month
- Total Monthly Payment: £750
In this example, the buyer would need to come up with a deposit of £5,000, which is much more affordable compared to the £40,000 deposit they would need for a full mortgage. The buyer would also have lower monthly payments compared to purchasing the property outright, but they would still need to pay rent on the remaining share.
As the buyer saves more and wants to purchase more of the property, they can choose to staircase. Let’s say the buyer decides to purchase an additional 25% share of the property after two years. The cost of this additional share would be £50,000, and they would need to secure a mortgage for this amount.
With the new mortgage, the buyer would now own 75% of the property and only pay rent on the remaining 25%. Their total monthly payment would change as follows:
- New Mortgage Payment: £350 (for the initial share) + £250 (for the additional share) = £600
- New Rent: £200 (for the remaining 25% share)
Thus, the new total monthly payment would be £800 (£600 mortgage + £200 rent), which is slightly higher but reflects a greater ownership percentage.
The Shared Ownership Process in Blackpool
If you’re interested in shared ownership in Blackpool, the process typically involves the following steps:
- Check Eligibility: Before applying for a shared ownership mortgage, you need to check if you meet the eligibility criteria. Generally, you must be a first-time buyer or unable to afford a home suitable for your needs without shared ownership. You must also meet the income criteria, which varies depending on the property and housing association.
- Find a Property: Once you’re eligible, you can search for shared ownership properties in Blackpool. This is typically done through housing associations or property developers offering shared ownership schemes.
- Apply for a Mortgage: After finding a property, you can apply for a mortgage on your share of the property. This is similar to applying for a standard mortgage, but the terms may differ based on the shared ownership nature of the loan.
- Move In and Pay Rent: Once your mortgage is approved, you can move into your new home and begin making your mortgage payments along with the rent for the remaining share of the property.
- Staircasing: Over time, you can choose to buy additional shares of the property. This is typically done in increments of 10% or 25% of the property’s value. When you buy more shares, your rent will decrease, and your equity in the property will increase.
Conclusion
Shared ownership mortgages in Blackpool are an excellent option for those who want to get onto the property ladder but are unable to afford the high upfront costs of traditional homeownership. While the process involves some trade-offs, such as ongoing rent payments and restrictions on selling, it offers a path to homeownership for many who would otherwise be shut out of the market.
If you’re considering this option, it’s important to weigh the pros and cons carefully, understand the financial implications, and ensure that it’s the right choice for your long-term goals. Shared ownership is a flexible and practical solution, but like any financial commitment, it requires thoughtful consideration and planning.
