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Shared ownership mortgages with bad credit

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HomeFirst Time BuyersShared ownership mortgages with bad credit

Shared ownership mortgages with bad credit

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Last reviewed on 17th February 2022

Getting a shared ownership mortgage with bad credit is possible with the correct approach. You must also qualify for the scheme before applying for a mortgage. Shared ownership can be a great way of getting on the housing ladder, especially if you have poor credit.

As you’re buying a share of a property, you’re able to start small and eventually buy a larger share. This is why shared ownership can be a perfect solution for those with bad credit. That being said, bad credit can make mortgage approval difficult.

Can I get a shared ownership mortgage with bad credit?

Although it’s possible to get a shared ownership mortgage with bad credit, approval isn’t guaranteed. Lenders will assess your income along with your credit issues to assess whether a mortgage is possible.

As you’re applying for a shared ownership mortgage, lenders will also assess the share you wish to buy. For instance, if you apply to buy a 50% share in your home, some lenders may decline you simply because of your credit score. Other lenders may suggest that you buy a lower share to compensate for your credit problems.

What credit issues affect a shared ownership mortgage?

It’s possible to get a shared ownership mortgage with the following credit issues:

  • County court judgements (CCJs)
  • Missed payments and arrears
  • Defaults on your credit file
  • After an IVA, bankruptcy or DMP

Having bad credit doesn’t necessarily mean that your credit file is riddled with issues. For instance, a lack of credit altogether can also make mortgage approval difficult.

Read more: Can I get a mortgage with no credit history?

What are the pros and cons of shared ownership with bad credit?

Each applicant’s credit file tells a completely different story. As a result, it’s possible for one applicant to be approved while another is declined. It’s highly recommended that you speak to an advisor before applying for a mortgage. We’ll then let you know if you’re likely to be approved.

Pros of shared ownership

  • Shared ownership is a great way to become a homeowner
  • Your mortgage may be cheaper than renting
  • Ability to ‘staircase’ and buy more shares in your home
  • Freedom to treat your property as you want, compared to renting
  • Create equity in your property with time
  • Eventually, own your property outright

Cons of shared ownership

  • You’ll still need permission to make large changes to your property
  • If you decided to sell your share, you’d have to follow your housing association guidelines
  • Although you may gain equity, the remaining share will also increase in price
  • It may be better to improve your credit score and save a larger deposit
  • Shared ownership properties are leasehold and not freehold

Buying a home is a dream for many, but it can make better financial sense to wait until your credit improves before applying for a mortgage. Furthermore, you may be approved a regular mortgage as opposed to using the shared ownership scheme.

ask a mortgage broker

Will I qualify for shared ownership with bad credit?

Qualifying for shared ownership shouldn’t be too difficult, even with bad credit. This is because the scheme will typically assess the circumstances around your living arrangements, rather than your credit.

To qualify for the scheme, you must meet the following conditions:

  • Earn less than £80,000 a year as a household (£90,000 in London)
  • You’re either a first-time buyer or an existing shared owner
  • Or, you used to own a home, but can’t afford to buy a new one

Your mortgage lender will actively apply for a credit search on your file. Nonetheless, it’s a good idea to check your credit report before doing so. This will give you a better understanding of the issues on your credit file.

Alternatives to using shared ownership

If you have bad credit, you’re probably searching for the best way to get a mortgage. While shared ownership can certainly be one way of buying a property, there are other alternatives to consider.

If you have bad credit, other alternatives to shared ownership include:

  • Using a guarantor
  • Getting help with a gifted deposit
  • Choosing a different mortgage scheme

Applying with a guarantor

If you have a willing guarantor, lenders may approve you, even with bad credit. This is because the bulk of the risk is placed on your guarantor. That said, your guarantor is taking a big risk, so it’s important they get legal advice before making any commitments.

Read more: What is a guarantor mortgage?

Should I use a gifted deposit?

Your family and friends may be able to gift you a mortgage deposit. This can be a great alternative as you can then apply for a regular mortgage rather than shared ownership.

It’s important to understand that gifted deposits don’t give your friends or family any rights to the property. It also needs to be clear and in writing that your deposit is a gift and not a loan.

Learn more: Can I get a mortgage with a gifted deposit?

Choosing a different mortgage scheme

There are different mortgage schemes that you may be eligible for. For instance, the government launched the Mortgage Guarantee scheme in April 2021. This allows eligible buyers to get a mortgage with a 5% deposit.

Other schemes that you may benefit from include:

How can I get help with my shared ownership mortgage?

Anyone that’s applying for a mortgage should seek professional advice from an experienced mortgage advisor. This is especially true if you have bad credit as you risk being declined, which can knock your credit score further.

Make an enquiry with an expert and we’ll check whether you qualify for a mortgage. Furthermore, we’ll also check whether using the shared ownership scheme is a viable option. We may find that there are better alternatives suited to your credit file, which could save you money across your mortgage term.

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About the author

Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.