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Shared Ownership

Shared ownership schemes are intended to help people who cannot afford to buy a suitable home in any other way. You share ownership of a property with a local authority or housing association. You pay rent to the local authority or housing association for part of the property and a mortgage on the rest. You will usually be able to buy further shares in the property at a later date.

To qualify for the scheme you must usually be a first time buyer, and priority is given to local authority or housing association tenants. Other people in housing need may also be considered for the scheme. You must be able to get your own mortgage to meet the purchase costs on a percentage of the property.

In Northern Ireland, the Northern Ireland Co-Ownership Housing Association runs a similar scheme, called the co-ownership scheme.

Mortgages

If you wish to buy a home you may be able to borrow money to do this. This is called a mortgage. The loan is for a fixed period, called a term and you have to pay interest on the loan. If you do not keep up the agreed repayments, the lender can take possession of the property.

There are several types of mortgage available. The most common ones are described below:

Repayment mortgage

This is a mortgage in which the capital borrowed is repaid gradually over the period of the loan. The capital is paid in monthly instalments together with an amount of interest. The amount of capital which is repaid gradually increases over the years while the amount of interest goes down.

Interest only mortgage

With this type of mortgage, you pay interest on the loan in monthly instalments to the lender. Instead of repaying the loan each month, you pay into a long-term investment or savings plan which should grow enough to clear the loan at the end of the mortgage term. However, if it doesn’t grow as planned, you will have a shortfall and you will need to think about ways of making this up.

There are three main types of interest-only mortgages.

an endowment mortgage. This mortgage is made up of two parts – the loan from the lender and an endowment policy taken out with an insurance company. You pay interest on the loan in monthly instalments to the lender but do not actually pay off any of the loan. The endowment policy is paid monthly to an insurance company. At the end of the mortgage term, the policy matures and produces a lump sum which should pay off the loan to the lender. In some circumstances, an endowment policy may produce an additional lump sum. However, there is also a risk that it will not be worth enough to pay off the loan at the end of the mortgage term. If you have been told by your endowment provider that your policy will not be enough to pay off your loan, you should seek independent financial advice. You can get information about dealing with endowment policies from the Financial Services Authority (FSA)

a pension mortgage. This mortgage is mainly for self-employed people. The monthly payments are made up of interest payments on the loan and contributions to a pension scheme. When the borrower retires, there is a lump sum to pay off the loan and a pension

an ISA mortgage. With an ISA mortgage, you pay interest to the lender, and contributions to an Individual Savings Account (ISA) which should pay off the loan.

Islamic mortgage

With an Islamic mortgage, none of the monthly payments includes interest. Instead, the lender makes a charge for lending you the capital to buy your property which can be recovered in one of a number of different ways, for example, by charging you rent.

Where to get a mortgage from

A mortgage could be available from a number of different sources. Some of the available options are:-

  • building societies
  • banks
  • insurance companies. They only provide endowment mortgages (see above)
  • large building companies might arrange mortgages on their own new-build homes
  • finance houses
  • specialised mortgage companies.

For some groups of people, such as first-time buyers and key workers, it may also be possible to borrow some of the money you need to buy a home from other, government-backed sources. You will usually need to borrow the rest of the money from a normal mortgage lender such as a bank or building society.

If you’re thinking about taking out a mortgage you should make sure you look into all the different options available, and that you only borrow what can afford to pay back. If you do not keep up the agreed repayments, the lender can take possession of the property.

The Financial Services Authority (FSA) has produced a helpful guide to mortgages called ‘No selling. No jargon. Just the facts about mortgages’.

Citizen’s Advice Bureau January 2010