Shared Ownership Mortgages with Bad Credit

Shared ownership can be a great way of getting onto the property ladder and many people find that their mortgage is cheaper than renting, but is it possible to qualify for the scheme with bad credit?

In this article we’ll look at some of the most common issues shared ownership customers with bad credit may experience. We will answer some of the key questions about the impact of bad credit on this type of mortgage and tell you how an expert broker can find the right product for you.

Can I buy a shared ownership home if I have bad credit?

Yes you can but the process could be a little more tricky than if you had a perfect credit score. Bad credit can be an indication to lenders that a borrower is not good at managing their debts. A poor credit score may also give you less choice when it comes to choosing which lender to go with for your shared ownership mortgage.

A lender will look at how long ago you acquired the bad credit, how serious it was and whether it has been resolved or not before deciding if you’re eligible. It could be advantageous to get a copy of your credit report early on in the process so you know if there’s anything you can improve to make yourself more appealing to lenders.

The expert brokers we work with have helped many people with an adverse credit history and they will be able to help you find deals that wouldn’t be immediately obvious without their assistance.

It’s also important to remember that having no credit whatsoever can also be an issue when looking for mortgage approval as you will not be able to demonstrate you can manage your monthly repayments.

What type of credit issues will a mortgage lender look at?

Having bad credit does not necessarily mean you will be refused a shared ownership mortgage but it may limit your lender options. Some lenders will assess the share of the property you want to buy and may turn you down, whereas others may encourage you to buy a smaller portion to minimise the risk of a default on payments.

Here are a few of the issues lenders may be looking out for.

• Missed/late payments – If your credit history shows a failure to keep up with payments or recurrent late payments this will affect your credit score. This will mean you may need to use a specialist bad credit mortgage lender. If you are planning to buy a shared ownership home and know you will need to apply for a mortgage, try to have a 6-12 month period where you keep up with all payments first.
• CCJs – If you have not paid back your CCJ, or only partially paid it, you may struggle to get a shared ownership mortgage. Lenders will want to check when it was satisfied before they give you a mortgage offer.
• IVAs – An IVA could make it difficult for you to get a shared ownership mortgage and some lenders may require a larger deposit. However, if you can demonstrate that you are able to keep up with your repayment plan instalments then there should be a bad credit mortgage lender out there for you.
• Bankruptcy – If you have been declared bankrupt in the past it does not make you ineligible for a shared ownership mortgage. A lender will want to know when you were officially discharged. Specialist lenders may be happy to give you a mortgage offer two or three years after the discharge but, as always, eligibility will be considered on a case-by-case basis and will depend on how you have managed other credit since your bankruptcy.
• Payday loans – Many mortgage lenders will turn down your application if you have taken out a payday loan as this form of high-interest debt is a clear sign of a poor credit history. As with all of these types of credit issues, there may be some options available to you and a mortgage broker will be able to advise you further.

How to begin your application

Follow these steps to start your application for a bad credit Shared Ownership mortgage…

• Contact your local housing association: Before you apply, you’ll need to check whether your local housing authority has any specific eligibility requirements if you’re using the scheme within their jurisdiction. If you live in London, consult gov.uk, while customers in Scotland and Northern Ireland should visit Help to Buy and Co-Ownership NI respectively for further information.
• Download your credit reports: This is an important step if you have bad credit. By downloading all of your credit reports, you can optimise them ahead of your application and this could mean boosting your chances of landing a good deal. Be sure to challenge any inaccuracies and have outdated information removed.
• Speak to a mortgage broker: This is highly recommended early in the process if you’re applying for Shared Ownership with bad credit as there are brokers who specialise in both of these areas. Their knowledge and experience of Shared Ownership and track record of getting mortgages for customers with bad credit could be the key factor that helps you save time, money and potential disappointment.

Eligibility criteria

Shared Ownership opens up the option of buying a home for those who may not be able to get onto the property ladder otherwise, including applicants with bad credit. As with all schemes it comes with a number of eligibility requirements such as being aged 18 or over but these will vary between different housing associations, as will the credit history requirements.

Affordability

If you have fallen into arrears with credit repayments this will affect your affordability rating. Lenders may also turn down your application if you have outstanding debts or a large number of credit cards and your income does not easily surpass your outgoings. If you can reduce your debts this will make you a more appealing prospect for lenders.

Many housing associations have an annual household maximum income limit for applicants which is around the £60,000-£80,000 mark. In London this figure rises slightly to £90,000 a year. You will also need to prove that you don’t have the means to buy a suitable home on the open market and that you don’t already own a property.

Deposit size

Shared Ownership schemes usually require a deposit of 5-10% of the equity share you are buying. Obviously it’s preferable to have a larger deposit to enable you to own a greater portion of the property and to make you a more attractive prospect for lenders. If you have a bad credit history a lender may require that you put down a larger deposit in order to qualify.

Property type

When you enter a Shared Ownership scheme you’ll be buying a leasehold flat or house which will either be a new build or resale property. These properties will have been purpose-built for the housing association scheme using a government subsidy. The housing association will carry out a financial assessment to see what size property you can afford to buy a share of.

It used to be the case that you could only buy a property which had one extra bedroom than the household size but this limit has now been scrapped.

Having bad credit will have no bearing on the property types available to you through the scheme, since you will be limited to Shared Ownership properties regardless.

Is a 100% shared ownership mortgage possible with bad credit?

It would be extremely difficult. Even with a clean credit record, most lenders would require at least 5%. With a bad credit record it’s highly likely you’ll need to put down more than this in order to qualify.

In addition, your income and savings will be assessed to determine what percentage you can afford. There are a few mortgage lenders who may accept no deposit and a broker will be able to check if your circumstances fit their criteria.

Get matched with an expert bad credit broker today

There are many different ways bad credit could affect the application process for a shared ownership mortgage and some customers will have more complex situations than others. The best way to ensure you get the best possible deal is to seek professional advice.

We work with mortgage brokers who have a track record of helping people with bad credit buy a property through Shared Ownership. They can find you the most appropriate lender, guide you through the application process and help you complete the paperwork correctly.

Call today on 0808 189 0463 or enquire online to arrange a free no-obligation chat between you and your ideal mortgage broker today.