Pros and Cons of Buying a Shared Home/Mortgage

Shared Home/Mortgage

For many, buying a home is a dream come true. 

But with high property prices, it’s not always easy. Shared ownership and joint mortgages offer alternatives. 

They can be great ways to step onto the property ladder, especially if buying alone is out of reach. However, like all financial decisions, they come with their own set of advantages and disadvantages.

Pros of Shared Ownership:

  • More Affordable Entry: Shared ownership schemes allow you to buy a part of your home (25-75%) and pay rent on the rest. This setup significantly reduces the mortgage you need, making homeownership more attainable​​.

  • Lower Initial Costs: With a smaller mortgage comes a smaller deposit requirement. It’s a more achievable route than buying outright. Plus, as your property’s value increases, so does the equity in the portion you own, aiding future property endeavours​​.

  • Opportunity to Increase Ownership: As your financial situation improves, you can buy more of the property in a process known as staircasing. This gradual approach can eventually lead to full ownership​​.

  • Flexibility in Changing Market Conditions: Shared ownership provides flexibility to adapt to changing housing market conditions. If the market value of properties rises, your investment in the shared portion could see increased returns. Conversely, if the market dips, your risk is limited to the share you own, not the entire property value.

  • Access to Better Locations: Shared ownership schemes often exist in areas where full ownership might be unaffordable for many. This means you can live in a desirable or convenient location that might otherwise be out of your budget if you were buying a home outright.

Cons of Shared Ownership:

  • Tenancy Limitations: Despite part-owning your home, you’re still a tenant and subject to related risks like eviction for rent arrears or other breaches of tenancy. If evicted, you risk losing your investment in the property​​.

  • Stamp Duty Complications: Shared ownership can complicate stamp duty payments. You might not be eligible for first-time buyer exemptions and could face charges each time you increase your share​​.

  • Ongoing Costs: You’re responsible for service charges for communal areas and leasehold-related issues. These ongoing costs can add up over time​​​​.

  • Restrictions on Use: Subletting a shared ownership property is generally not allowed unless you own the entire property. This can limit flexibility in how you use or generate income from the property​​.

Shared Home/Mortgage

Pros of Joint Mortgages:

  • Increased Borrowing Capacity: Joint mortgages usually mean you can borrow more due to the combined incomes of all applicants. This can enable you to afford a better or larger property​​.

  • Shared Financial Responsibility: Both (or all) parties are equally responsible for the mortgage, spreading the financial burden. This shared responsibility can make managing repayments more feasible​​.

  • Versatile Applicants: A joint mortgage isn’t just for romantic partners. Friends, relatives, or business partners can also be co-borrowers, providing flexibility in who you can buy with​​​​.

Cons of Joint Mortgages:

  • Joint Liability: Shared ownership properties have several renting restrictions, the most important of which is equal liability for the mortgage. If one person fails to contribute, the others must cover the entire repayment. This can be risky if co-borrowers face financial difficulties​​.

  • Credit Score Impact: Your credit rating can be affected by your co-borrowers’ financial habits. If they have a poor credit history or miss payments, it could negatively impact your credit score​​​​.

  • Complex Separation Scenarios: If relationships between co-borrowers sour or circumstances change (like a job relocation), dealing with the joint mortgage can be challenging. Options include selling the property or one party buying out the others​​.

Final Verdict

Shared ownership and joint mortgages offer paths to homeownership that might otherwise be unattainable. They are particularly useful in high-cost housing markets. However, they come with risks and responsibilities that need careful consideration. Whether you’re looking to buy with a partner, friend, or relative, understanding these pros and cons will help you make a more informed and confident decision.