Getting a Shared Ownership mortgage with bad credit

Shared Ownership offers a lifeline for many, and while a less-than-perfect credit history can make securing a mortgage challenging, it’s often still possible. This guide will explain how to navigate the process and boost your chances of homeownership through Shared Ownership, even with past financial blemishes.

What is Shared Ownership?

The Shared Ownership Scheme is a government initiative designed to enable people who might not be able to afford the full mortgage on a property to instead own a percentage of it. If you have enough for the deposit, you could purchase between 10% to 75% of the property’s value, with the balance owned by a local housing association or local authority. You would then make mortgage payments on your portion of the house, while paying rent on the rest to the co-owner.

Over time, you can increase your ownership through a process known as ‘staircasing’, eventually allowing you to own 100% of the property and no longer pay rent.

Am I eligible for a Shared Ownership mortgage with bad credit?

The criteria for applying for a Shared Ownership mortgage are relatively straightforward. The scheme is designed to help those who need it most, generally fitting one of the following specific circumstances:

• First-time buyers.
• Those who already have a Shared Ownership mortgage and wish to move.
• People who previously owned a property but do not own one now, and who don’t have the means to take on a full mortgage outright.
• Households with a combined annual income of less than £80,000 (or £90,000 in London).

If your circumstances match any of the above, you should generally be eligible for a Shared Ownership mortgage, purchasing a portion of your home (typically 25%, 50%, or 75%) and supplying a deposit relative to that share.

Can I get a Shared Ownership mortgage with bad credit?

“Can I still qualify for a Shared Ownership mortgage with bad credit?” – this is a common concern, and the answer is yes, it’s often possible, but it can indeed be more challenging than for those with a clean borrowing history.

As the Shared Ownership scheme is already designed for individuals facing difficulties in getting on the property ladder, some mainstream lenders may view applicants with adverse credit events as too high a risk. These events can include:

• Default notes
• Missed loan or credit card repayments
• County Court Judgments (CCJs)
• Debt Management Plans (DMPs)
• Individual Voluntary Arrangements (IVAs)
• Bankruptcy

However, the market has shifted, and a number of specialist lenders now cater specifically to individuals with a blemished financial record. Successfully getting a Shared Ownership mortgage with bad credit is achievable with the right approach.

The suitability of a lender will depend on your unique situation: the nature of your bad credit, the circumstances under which it arose, how long ago it happened, and what you’ve done to repair your borrowing history since.

The impact of bad credit on your deposit & rates

If your credit history shows recent blemishes or severe adverse credit events like a repossession, a CCJ, an IVA, or a bankruptcy, lenders will likely perceive you as a higher lending risk. This can impact your mortgage in two key ways:

1. Higher Deposit: You might be asked for a deposit of 15% or more of the share you are buying, rather than the typical 5-10% for those with good credit.
2. Higher Interest Rates: Lenders may charge a higher interest rate on the loan to offset the increased risk.

Crucially, the impact of these factors lessens over time. The older the credit issue, the less severe its effect, as lenders consider your current financial affairs and how you have managed credit since the issues occurred. The most important factor is always your current affordability: demonstrating you can comfortably keep up with both your mortgage payments and the Shared Ownership rent.

Don’t let past issues deter you from getting a Shared Ownership mortgage with bad credit.

Why your credit report matters

Before applying, it’s highly recommended to get copies of your credit reports from the three main UK credit reference agencies: TransUnion, Equifax, and Experian.

• Spot Errors: You might find errors that can be corrected, potentially improving your credit score.
• Understand Your Standing: Knowing your credit history helps you understand what lenders will see and allows you to prepare for any questions they might have. This can significantly help your application when getting a Shared Ownership mortgage with bad credit.

How we can help with a Shared Ownership mortgage with bad credit

If you’re perceived as being a higher lending risk, securing a Shared Ownership mortgage can seem daunting. However, working with a specialist mortgage broker can significantly simplify the process.

Our expert team at The Mortgage Centres includes specialist adverse credit advisors and brokers with an in-depth knowledge of the bad credit mortgage market. We have access to deals and rates that you often won’t find on the high street. We’ll:

• Identify Suitable Lenders: We know which lenders are most likely to consider your application based on your specific credit history.
• Boost Your Application: We’ll help you complete the application and present your case in the most favourable light.
• Provide Personalised Advice: You’ll receive tailored mortgage advice that directly relates to your unique circumstances.

We’ve had years of experience helping a wide range of clients, including first-time buyers, find a mortgage deal that suits their situation and enables them to get on the path to homeownership, whatever their credit history. Where Shared Ownership is the best option for people with limited funds and a less-than-perfect credit rating, we make it our mission to help you with getting a Shared Ownership mortgage with bad credit.