Shared ownership mortgages, as the name suggest, are an arrangement made between two or more people to purchase a property and share the mortgage repayments. The arrangements vary regarding share if the repayments, occupation of the house and resale, but these are sorted out between the sharers of the mortgage.
Larger mortgage The main advantage of shared property ownership is a larger mortgage can be applied for. This is because the risk to the lender is less if there are more people involved in paying off the mortgage. As a greater mortgage can be loaned a better property can be purchased or greater renovations achieved. Lesser risk As there are more people involved, the risk to one individual is also reduced as the mortgage payments will not be as severe. With more than one person being involved the chances of refusal from the lender are also reduced and poor credit ratings will be less of a concern. Other opportunities ahead This is a very useful scheme if the owners are planning on renting the property after purchase, or for first time buyers who would otherwise struggle to be accepted for a mortgage. Better bargaining prospects Thanks to the increased levels of collateral the borrowers may also have an improved bargaining position when applying for the loan allowing them to get a more suitable payback period and interest rate.
The disadvantages of this scheme all lie with trust amongst the group buying the property.
Trusting your partner to make regular payments A mortgage is still a legal agreement so failure to payback the money or keep up with repayments can lead to legal action and repossession. This is a risk in any mortgage, but in this situation if one person drops out of the arrangement, the other person involved will have to pickup the financial shortfall.
What happens to the property after settlement of mortgage issues? Another problem arises from what to do with the property afterwards. If all individuals are planning on living in it or renting it out, then there are fewer problems, but if it is going to be a time share property, then a decision will have to be made about when people can stay there. Sale of property Arrangements will also need to be made as regards to selling the property. The questions that will need to be resolved are the share of the price and when to sell the property.