So you've set your heart on Shared Ownership, you've looked at some properties and picked one that you really like. You've gone through the steps, put in the application and then - shock, horror - you application gets rejected. Or, perhaps, it gets delayed over three months and you find that you have to pay for another valuation after the first one expired. What on earth could have gone wrong?
At Peabody, we have extensive experience in guiding first-time buyers through the Shared Ownership purchasing process. In our experience, there are some common pitfalls that may either hold up the purchase of a home or prevent it altogether. Here are the most common ones.
You didn't check your eligibility before applying
Before we are able to offer a property to a purchaser, Shared Ownership requires certain eligibility criteria to be met to determine that you are in need of assistance to purchase a home. As a government-backed scheme, Shared Ownership is only available to first time buyers on low to medium incomes who, without Shared Ownership, would not be able to afford to buy a property on the open market.
Perminder Virk, Senior Sales Executive at Peabody comments, “We often receive a lot of enquiries for our Shared Ownership properties without applicants first checking whether they are eligible. It could be that they already own a property or that their household income is too high. We want to ensure we are helping those people who cannot afford to buy a property in London without the assistance of Shared Ownership, and at the same time, we don’t want anyone to fall in love with a property that they cannot actually purchase.”
Eligibility will vary depending on which development you are looking at purchasing, the property size and whether there are any criteria imposed by the local authority. However, there are some general, over-arching criteria for Shared Ownership eligibility, which can be found in the link below.
Your credit score is poor
When applying to buy a Shared Ownership property, we will ask to check your credit history as part of the application process, and so will any mortgage lender you apply with. This is because we need to know about any loans or debts that you have as part of our assessment.
A poor credit history could mean your application is turned down by us or your mortgage lender, or that you end up paying a higher rate of interest on your mortgage and other loans in the future you apply for. Therefore, it is good to understand early in the process what your credit score is and how this could affect your application to purchase a property.
We will ask you to apply for your own credit report from Experian, Equifax or Call Credit. This is because when someone else does a credit check on you (for example, when you apply for credit like a loan or hire purchase) it will appear on your credit history. You should also be aware that a lot of credit checks on your history in a short space of time can make a prospective lender suspicious, so you should consult with a mortgage adviser for further guidance.
- Check your credit report and score with Experian
- Check your credit report and score with Equifax
- Check your credit report and score with Call Credit
Your solicitor has no experience in Shared Ownership
You should make sure that you use a solicitor that has experience of Shared Ownership. The Shared Ownership conveyance process is not the same as traditional open market home purchases so you should use someone who already has experience of this, otherwise they may be learning at your expense.
In some circumstances we have experienced solicitors who have held up the conveyance process for a purchase as they are not familiar with the finer details of Shared Ownership.
We recommend you always obtain a quotation before instructing a Solicitor, and when calling for a quote, see how they answer your call and how quickly they respond to your enquiry – this is a good indication of the service you may receive.
The panel of Solicitors we use has a lot of experience of the Shared Ownership conveyance process. You do not necessarily have to use a panel solicitor, but it is recommended.
You didn't have enough deposit
Lenders will require you to contribute a deposit towards the share in the property you wish to buy, and traditionally this is 10% of the value of the share, although you will be able to find some lenders who will lend on 5% deposit. However, sometimes this can be higher or lower, which can affect the interest rate. You will need to discuss these aspects with your mortgage adviser.
For example, a property with a full market value of £300,000 being sold for £90,000 (30% share) will usually require a deposit of around £9,000 by the lender.
Please consult your mortgage adviser for financial information about specific development and deposit requirements.
You didn't have enough savings
Excluding your mortgage deposit, you must have at least an average of £3,500 to £4,500 of savings to cover the costs of buying (depending on the value of your home).
These costs are usually made up of the following:
- Reservation fee – £500
- Mortgage Adviser fee – Usually starts from £350
- Mortgage Valuation fee – Usually starts from £375
- Mortgage Arrangement fee – Usually starts from £500
- Solicitors’ fees – Start from £500
- Legal Disbursements – Usually start at around £200.
- Stamp Duty Land Tax (SDLT)* – Seek the advice of your solicitor on the exact amount payable.
- Deposit – We will ask you for a deposit of £1,000 when you exchange contracts. Like the reservation fee, this will be deducted from the share you buy at completion. This is payable to your solicitor.
- Telephone Connection charges – Likely to be around £150
You quit your job during the application process
When considering a mortgage loan, lenders will look at various aspects of your income, including how much you earn, the stability of your income and the longevity. Whilst taking a new job in no way will automatically disqualify you from getting a mortgage approved, it is seen as a red flag to lenders and may delay the purchase of your home.
Lenders often require previous payslips of at least three months to document your employment as the income will help to decide how much you qualify to borrow. If your income changes, then the lender has to re-evaluate everything which causes delays to your purchase.
Lenders wants to make sure you have a reliable income so you’ll be able to pay your mortgage every month, so a change to the same field of work with an equal or higher pay is going to be less of an issue than changing to a lower paying job or to a new career. Similarly, a change from a standard salaried position to a commissioned or self-employed position is also likely to cause issues with a lender approving a mortgage loan.
When purchasing a Shared Ownership home, we recommend you consult your mortgage adviser before making any changes to your employment situation.