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Shared Ownership mortgages can offer a lifeline to those who would otherwise struggle to afford to buy a home, but can you get one with bad credit?
In this guide, you will learn when it is possible to get a Shared Ownership mortgage with bad credit, how to go about it, and what we can do to help.
Can you get a Shared Ownership mortgage with bad credit?
Yes. Having a history of bad credit will not stop you from qualifying for the Shared Ownership scheme, but can make it harder to get a mortgage compared to someone with clean credit.
Moreover, since there are a restricted number of lenders already for Shared Ownership, your options may be more limited unless you use a mortgage broker to unlock more of the market. They often have access to exclusive deals, including bad credit mortgages.
Lenders won’t treat a bad credit mortgage application any differently because the borrower is applying through the Shared Ownership scheme and will look at the age, severity and circumstances surrounding your adverse credit to help them make a lending decision.
Lending and eligibility criteria
To get approved for a Shared Ownership mortgage with adverse credit, you must meet the eligibility criteria for a bad credit mortgage and for the government scheme itself.
Bad credit mortgage eligibility
You lender will assess your eligibility for an adverse credit mortgage based on the following:
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The type of bad credit you have: You are more likely to be approved with less severe issues such as missed payments, compared to something more serious, like a bankruptcy or repossession. Severe issues typically need a specialist lender.
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How long it has been on your file: Older bad credit is less likely to be an issue than recent instances of it. Even the most severe credit problems will disappear from your credit files in 6-7 years, but you may be able to get a mortgage earlier than this.
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Deposit amount: For more severe credit issues or recent ones, you may need more than 5-10% deposit to get approved for a mortgage, as bad credit can mean lower LTVs. That will be 5-10% of the value of the home’s share you are buying.
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Other factors: Seek professional advice from a broker if you will be over 75 during the mortgage term or are self-employed with less than two years’ accounts. Either scenario can make it harder to get a Shared Ownership mortgage with bad credit.
Shared Ownership criteria
As well as meeting the requirements for a bad credit mortgage, you will also need to fulfil the eligibility criteria for the Shared Ownership scheme, which is summarised below:
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Income: Your household income cannot exceed £80,000 a year, or £90,000 a year if you live in London, if you wish to use the Shared Ownership scheme.
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Borrower status: You need to be a first-time buyer, a former homeowner who can no longer afford a mortgage or an ex-homeowner who needs to leave their property due to a change of circumstances, such as the breakdown of a relationship.
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Age: The minimum age limit for Shared Ownership is 18 years old.
Why you need a mortgage broker
It is highly recommended that you use a mortgage broker if you are applying for a Shared Ownership mortgage with bad credit. Not all lenders offer mortgages through the government scheme, and having bad credit might reduce your options even more.
On top of this, not all housing associations will enter a co-ownership agreement with you if you have bad credit, so advice on which ones are unavailable can be useful.
The right broker can provide this advice, as well as increasing your mortgage options by helping you access exclusive deals and lenders who specialise in Shared Ownership and bad credit mortgages. These lenders are often only available through a broker.
You can book in a free consultation with one to find out what your options are, or start comparing the latest rates and deals yourself, below:
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Which mortgage lenders are available?
Not all UK lenders offer mortgages through the Shared Ownership scheme and the ones that do tend to be a mixture of high street banks and specialist mortgage providers.
If your bad credit is only a minor issue, such as the odd missed or late payment, you will have a wider choice of these available lenders, including the mainstream ones.
However, if you have severe bad credit or the issue occurred recently, your options might be limited to the specialist bad credit lenders who support the scheme, such as the following:
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Pepper Money: Offers Shared Ownership mortgages up to 75% LTV and 95% Loan to Share Value.
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Kent Reliance: Will offer Shared Ownership mortgages with a maximum loan cap of £1,000,000 and a minimum property value of £125,000. You must be buying at least a 10% share in the property to use them, and a maximum share of 75%.
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Kensington Mortgages: A well-known bad credit mortgage lender who accepts Shared Ownership applications with no specific caveats.
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The Mortgage Lender: Will lend on Shared Ownership properties in England and Wales with an EPC rating of A-C.
The above are merely a small sample of the lenders available for bad credit Shared Ownership mortgage - speak to one of our brokers for a rundown of your options.
Will you pay a higher interest rate?
The interest rates on Shared Ownership mortgages are generally no different to standard residential mortgage deals, but if you have bad credit, they are likely to be higher.
Just how much higher they will be will depend on how severe your bad credit is, how long ago it occurred and whether there is a good explanation for it. Putting down extra deposit to lower the LTV can also help offset the risk and help you qualify for a lower interest rate.
Speak to one of our brokers to find out what rates are currently available to you.
Will bad credit affect the amount you can borrow?
It can have an indirect effect on this as having bad credit might mean you qualify for a lower LTV and therefore cannot get a mortgage for the full value of your share of the property.
Your maximum borrowing will also be capped by most lenders at around 4.5 times your annual salary, so bear this in mind when working out whether you can afford a mortgage that will cover the percentage you are buying of the property’s total value.
Why choose Teito for your Shared Ownership mortgage?
On Teito, you can compare the latest mortgage rates for free or book in a free, no-obligation chat with a broker who specialises in bad credit and Shared Ownership mortgages.
Here are just some of the reasons people choose us for their mortgage needs:
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Our brokers specialise in bad credit and Shared Ownership
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It takes seconds to access the latest rates through us
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We are 5-star rated on leading review websites
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You can secure your agreement in principle in minutes
Ready to compare the latest rates and take advantage of a free, no-obligation chat with a broker who specialises in bad credit Shared Ownership mortgage? Get started here.
FAQs
There is always a possibility you can get a Shared Ownership mortgage with most types of bad credit, but several factors will determine the outcome of your application.
The most severe types of bad credit are bankruptcy, repossessions and having multiple credit problems. After these three come County Court Judgements (CCJs), missed payments on secured credit agreements, defaults IVAs and debt management plans.
The least severe issues are late payments, low credit score and having no credit history.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.