Shared ownership is being hailed as the saviour of UK first time buyers. It is a simple but unfortunate truth that most potential first time buyers in the UK can't get a mortgage. The two main hurdles are that they don't have a good enough credit rating, or they can't raise a big enough deposit.
Shared ownership is an answer for many because it allows people who don't have a good enough credit rating to team up with people that do and half the deposit requirements between them.
This is great in theory but very rarely good in practice. Shared mortgages are complicated. Yes, jointly the pair can often borrow more, but as with most borrowing situations the house (the bank) is the only winner. In a shared ownership loan one person is the primary borrower and the other a co-borrower. For the debtors it would be better if the person with the highest credit rating was the primary borrower, but most banks make it the one with the highest income, which means if that person doesn't have the best credit rating then the rate will be higher on the loan.
Worse, the banks only accept on owner on the property, this is usually the highest earner/primary borrower. Thus, having the mortgage ultimately result in shared ownership involves complex negotiations.
Another thing that catches people out is if one of the borrowers dies leaving the other(s) with the full payments to make. To avoid this you can add a single survivorship clause in the title deed, some shared ownership deals have this included but you should always be sure.
But by far the biggest pitfall of joint, shared, or mates' mortgages is the potential for the relationship between borrowers to break-down. Nothing causes friends to fall out quicker than a debt between them. A common problem is when one of the borrower's circumstances change, i.e. they lose their job, or something else happens and they can no longer make their share of the repayments. Another is when one of the borrowers meets someone special and wants to break out of the mates' mortgage to get a place together with their partner.
If the partnership is to be dissolved there is the complicated procedure of splitting the debt, and if one wants to buy out the other, it means surveyors at dawn.
- Friday 16 December 2011