Posts Tagged ‘commercial mortgages’

The Basics You Need to be Aware About When it Comes to a Buy To Let Mortgage

Sep 6th, 11 / 0 Comments

Most banks are not keen on borrowers renting out any part of their property when they have a mortgage unless it is a specific mortgage called a buy to let. The buy to let mortgage means that you have more protection too.                      

The Lenders Demands for a Buy To Let- As with a ‘regular’ mortgage, the property still acts as collateral against the mortgage being taken out. But instead of the mortgage being taken on the actual value of the property, the mortgage will be taken out on the projected rental value of the property, as it is the rent that the mortgage will be paid through.                   

Some lenders will want proof of income and/or some sort of rainy day fund. As it is likely at some point that the property will be empty and you do not have any tenants, so you will have to prove you have the finances to cover the mortgage as well as any other costs you have.                      

What Are The Advantages? – There are clear advantages to a buy to let mortgage, if it suits your circumstances and future financial plans. The mortgage on an extra property can be paid off by tenants and not by yourself, so for the last two decades, with rising property prices, it has been an excellent way of investing for the future.                    

The crash in property prices three years ago changed all that. Throughout the last decade, one only needed to switch on the TV and there was a programme about how to make money in property. This was because of a booming property market. There has been a steep decline in activity in the buy to let market but that doesn’t mean to say that there aren’t buy to let mortgages still out there. In fact, there are plenty.                         

You’ll normally still need to have an income so that if the property is empty the lender knows that you can afford to cover the mortgage for that period, although income levels do not generally need to be so high, as such circumstances should only be temporary.

What Do You Need For a Buy To Let Mortgage? – A surveyor will normally be instructed to value the property in terms of its market value, and how much rental income can realistically be made from the property, as the rental income is after all what will be funding the repayments.

Seek Advice If Necessary – Mortgage brokers are professionally trained and qualified.  This means that they have an excellent knowledge of how buy to let mortgages work as well as access to a wide range of mortgage deals from throughout the UK market.  You may pay a mortgage broker a fee for their services, but this may well be worthwhile if they can find a market leading buy to let mortgage for you.                          

Think About The Area – Think logically – if you’re buying a property that you want to rent out it needs to be in a place where people will want to rent. Near a school, close to shops and bus routes – all of these things will add to its appeal. Making sure that it is in a good state of repair will also increase its attractiveness.                       

Get Insurance – Tenants, however nice they are, will never look after your property the way you would. They won’t mean to scuff the skirting board or spill wine on the carpet, but they will. You will need to get an insurance policy that covers the building and its contents to make sure than being a landlord doesn’t cost you more than you actually make.               

Howard writes for Just Commercial Mortgages.com the UK’s No.1 site for the latest commercial mortgage rates and commercial property finance news.

Mortgages

All You Need To Know About Choosing The Commercial Property Solicitor That’s Right For You

Sep 4th, 11 / 0 Comments

Choosing the right commercial property solicitor can make or break your property deal.  Just as finding the right commercial mortgage lender is key to financing your transaction, finding the right legal representation can be critical to a smooth purchase. 

So it could be argued it is of the most vital importance you hire the correct solicitor, one who you feel is trustworthy, knows what they’re talking about and seems capable of getting the task done. We’ve put together a quick introductory guide below to help you identify such a person with the qualities needed.

Red Tape: Make sure you get a solicitor who is under the umbrella of the Solicitors Regulatory Authority, those that are in the RSA are regulated and fully insured members. This is advantageous as you know they’re not a stereotypical shady solicitor, as they’re insured it means you as the client are protected during the mortgage process as well as having an official outlet for complaints through the RSA if you feel the need to take that route.

Location: A locally based solicitor is likely to know more about the property, the local area and any local searches that may be required.  Whilst solicitors in other towns may be able to undertake the work for you, they may not boast the same level of local knowledge as a solicitor in your vicinity.

Cost: While you want someone local, that doesn’t mean to go for the lowest denominator, in other words the cheapest solicitor you can find. You will want someone you can trust and who will put the hours in to get the job done, and in most cases the cost reflects the quality. Talk to a number of firms and treat it as an interview to see what services they will offer during the process and pick the one that suits your requirements.

There is no set estimate of what the legals will total at the end, depending on the deal it can run from a few hundred pounds to thousands of pounds. Always keep an eye on the added ‘disbursement’ costs for things such as VAT or Local Authority Searches to keep costs under control.
When deciding on a commercial property solicitor, be sure you are aware how their billing works. Are you paying a fixed fee or are you being charged for the work that they complete for you?  The law obliges Solicitors to give you an estimate of the likely costs of a transaction. The fees should be consistent with this original estimate, and you should start to ask questions if for some reason they are not. When it comes to your money, don’t be embarrassed to ask about costs with a solicitor’s firm before you hire them.

Find an Experienced Representative: When deciding on a commercial property solicitor it is a good idea to find one with a long track record and experience in dealing with acquisitions like yours.  Feel free to ask them if they have worked on this type of commercial property before?  Investigate what experience the solicitor has and find out what similar properties they have worked on. Again, your money and your business future are at stake and you need to find out as much as you can.  It may be useful to discover how long they have been practising and  if they have Law Society accreditation

As well as sorting out costs and services, always make it a point to ask who exactly you will be dealing with. Even in a small local law firm there could be a few solicitors working in the practice, when you go to meet them you might just end up talking to the guy in charge and mistake him for the person who will be doing the work. You don’t want to end up with the graduate straight out of university being the lead on such a complex and expensive deal.

Choosing a commercial mortgage solicitor is just like choosing a commercial mortgage lender. There are dozens out there and searching the market and doing your research before settling on one firm is essential for the best service you can obtain.

Howard O’Gollegos writes for Just Commercial Mortgages the UK’s No.1 site for the latest commercial mortgage rates and commercial property finance news.

Mortgages

Commercial Mortgage Costs – 5 You Need to be Aware Of

Aug 29th, 11 / 0 Comments

Taking out a commercial mortgage is not always quite so straight forward as many may believe. There are a few things that you need to think about beforehand, and in this article we look into the costs involved with entering into a commercial mortgage contract.

Your cash deposit is not the only cost involved. The deposit is the amount of money that you must set down in order to stake the loan, and this is usually 25% to 50% of the purchase price for commercial loans. But there are other costs to take into consideration, which we will now explore to help you to fully understand the real cost of a commercial mortgage.

Arrangement Fees For Setting Up The Mortgage: The arrangement fees are commonly a charge of around 1% (but can be slightly higher or lower), and they are charged by the lender for the administration involved with setting up the loan for you.  In some cases, the lender will allow you to add the fee to the value of the mortgage, to save you having to pay more money up front although you should be aware that you will be charged interest on it if you do add it to the loan amount.

Valuation fee: The property has to be professionally valued before it can be purchased and both the purchaser and the lender will need to have access to a full valuation of the property. The valuation fee that you will have to pay will depend on the size and the value of the property that you are interested in, but it can become more costly if a full survey is needed. As a rule of thumb a survey is always a good idea.

Don’t discount the need for a thorough structural survey by a conveyor, wither you or the lender could demand this to ease any fears of what the valuation brought up, especially if it is an older building. Obviously this will send the costs of the valuation fee skywards and to be 110% sure you might need/want to get two surveys conducted by separate conveyors.

The Professional and Legal Fees: Next comes everyone’s set of favourite people to make the process more complicated, the lawyers and solicitors. Legal contracts need to be drawn up and need checking so there are no loopholes or grey areas. This may also cover the setting up of insurance policies and site surveys and reports, depending on the type of property and transaction you are going setting up.

Early Repayment Charges: When you sign up for a commercial mortgage, make sure you understand how any ‘early repayment charges’ may work.  These are a ‘penalty’ that you pay if you decide to repay the mortgage early; typically within the first three to five years.  Early repayment charges are often a percentage of the commercial mortgage amount and so can be quite substantial.

Broker fees: A mortgage broker can be a very useful service to employ when you are looking for the best deal, but as with all services, there is a price tag attached. Approaching a broker is a good idea because often they have access to rates that are not available on the high street, but many will charge a fee for their services.

Again, it is worth checking with your broker whether they expect payment from you upon completion in a lump sum or they might take a commission fee directly from the lender. The fees can range because of a variety of factors, so this is something you will need to discuss to get a ballpark figure, though you can expect the fee to be anywhere from £300 to 1% of the mortgage borrowed, a very broad spectrum I think you’ll agree.

When you are working out the cost effectiveness of your development plan, and the relative cost of purchasing property, don’t leave additional costs off the balance sheet. It is tempting to make a deal look better than it actually is by leaving certain costs to one side. This is a false economy and won’t help you to fully judge whether a commercial purchase is right for you.

Howard O’Gollegos writes for Just Commercial Mortgages the UK’s No.1 site for the latest commercial mortgage rates and commercial property finance news.

Mortgage Refinance, Mortgages

4 Topics You Should Be Aware Of When Letting A Commercial Property

Aug 23rd, 11 / 0 Comments

Buying a commercial property can offer you great returns both in terms of income and capital growth.  However, once you have completed on your commercial mortgage and taken ownership of the property you then have to worry about leasing the property, which will often be done through a commercial letting agent.

You must accept that this will be a fundamentally costly process for your business, though if you consider that the expenditure is an investment, it does make a lot more sense. You will have to put a considerable amount of business capital into the purchase of a commercial property. (typically you will need at least a 25 per cent deposit to be eligible for a commercial mortgage, a far higher percentage than in a normal mortgage). Alas, this is just the beginning of the expense, not the end. There are various other fees and charges that you will encounter when taking out a commercial mortgage or business loan.  The purpose of this guide is to explain five of the most common fees and charges that are incurred when taking out a commercial mortgage to buy retail, manufacturing or office space.

Arrangement or Booking Fees: Banks, like all service sector industries, charge for as many of their services as they possibly can. Banks charge arranging fees for negotiating your mortgage for you. These are often not rigidly enforced and often open to negotiation. They can often depend on other factors such as the interest rate that you are being charged.  On average you are likely to pay a fee in the region of 0.5 to 1.5 per cent of the total value of the loan, but it is becoming increasingly common for lenders to add the arrangement fee to the value of the loan.

These facilities could include bathrooms for staff and customers, a kitchen or canteen for staff to have their lunch and so on. You will therefore need to think about whether you are prepared to undertake the work to have these put in if the building does not already have them. The interiors may also need updating in order to attract more tenants – especially for retail premises and offices where customers would be going inside.

Energy Performance Certificates: These days the law dictates that you must pay for and provide your tenants with an energy performance certificate (EPC).  A commercial EPC can be costly, so you will need to keep this in mind.  Depending on the building, this can cost a few hundred pounds.

If you do not provide the EPC, you can receive a hefty fine, so it’s just not worth the bother. Make sure that you get an EPC sorted out so that prospective tenants will know how energy efficient the premises are.

Costs For Redeeming Your Mortgage Early: If you repay your commercial mortgage early you may have to pay fees to exit the loan.  Even changing to a new mortgage product can be classed as exiting the loan, as the commercial mortgage would be repaid in such an instance and so you need to remember this if you want to change lenders. The fees also apply if you sell the property within the early repayment period.

The requirements under the Disability Discrimination Act will already have been considered if your property has been recently renovated or modernised.  Both planning consent and building regulations will have taken these issues into account.  In addition, your tenant will be required to comply with all laws and regulations regarding this issue when they sign their lease.  So, as a landlord you should be prepared to allow tenants to undertake any work necessary to bring the property in line with these regulations.  This may include building access ramps or modifying communal areas such as hallways.

The Dangers of Asbestos: You will need to have the building checked over by professionals to ensure that the property does not contain asbestos, as this has been deemed to be a dangerous and toxic substance.  If any is found then you will need to ensure that any works are taken care of to ensure that it is not dangerous to anyone inside the building, and any surround areas.

As you can see, there are many costs to consider, so you will need a good amount of money behind you before you start thinking about buying commercial premises.

Howard O’Gollegos writes for Just Commercial Mortgages the UK’s No.1 site for the latest commercial mortgage rates and commercial property finance news.

Mortgage Refinance, Mortgages

UK Mortgage Industry and FSA Bid to Halt Useless and Uneccessary EU Red Tape

Jul 22nd, 11 / 0 Comments

Mortgage Industry chiefs have banded together with the FSA to oppose strict European regulations on the commercial mortgage market. The rules, if introduced, may stifle the market just as it starts to make a recovery.

While the writing has been on the wall for the FSA since the Coalition Government came to power, it hasn’t stopped the agency trying to prove its usefulness, by strongly backing David Cameron’s anti- bureaucracy crusade. This inevitably means taking a strong if futile stance against the waves of red tape emanating from Brussels.

This change of heart has resulted in a decision to oppose new rules introduced at Brussels, designed to harmonise and standardise mortgage lending across the EU member states. Campaigners against these measures claim that because housing markets differ substantially across the EU member states, the regulations that apply in Germany or Spain may not make any sense in the UK.

The commercial property market in the United Kingdom is currently trying to force its way back out of the recent market crash, and commercial mortgages are still difficult to obtain in the country. It’s obvious that the commercial mortgage market is just not where it needs to be by the many empty commercial properties and premises across the country.

So what can we expect from these excessive regulations? If previous EU inspired regulations are anything to go by, double the amount of paperwork for lenders to compete, a reduction in flexibility and avenues open for a lender or broker to operate in, which have always worked in the past. Baisically just all round confusion for consumers and experts, bereft of being able to use common sense as EU regulation strangles the sector.

Whilst the FSA opposes the European Union plans, it does still believe that some form of regulation is required.  The FSA supports borrower’s rights and advocates a minimum threshold of mortgage protection to ensure that consumers have a basic standard of protection from disreputable lending institutions.

The FSA are now reviewing commercial mortgages, in a bid to set regulations in place before the commercial market starts to boom once more. Although the recovery of the market is slow, there are signs that it is beginning to pick up again and so now is the time to set regulations in place.

High risk lending such as bridging loans and other short credit arrangements based on the value of commercial property will probably face closer regulation. This was the unofficial message of the authority, which held talks with lenders last month. Short term lending, which can lead to market volatility, might be as closely regulated as regular mortgage lending. There is likely to be less sympathy in the currently financial climate towards novel financial schemes to raise money quickly which a perceived to be low security and high risk.

The FSA’s quiet and measured approach has actually won over many fans in the industry, not least because they are open to ideas and listening to those in the industry about what needs tinkering with. You won’t find many sectors where those in the industry are happy and optimistic about the regulators reviews and actions, it seems the ‘attract more bees with honey’ tactic is working a treat.

In a market that has had more than its fair share of bad news in the last two years, the approach of the FSA is certainly welcome, in part because it is adamant in its opposition to the imposition of European-wide regulations. These new laws threaten to apply rigidly, regardless of circumstances, in every member state. However, it is even more important that the FSA is planning to regulate against dubious lending practices in the Britain but is willing to be reasonable in its attitude towards the industry and listen to the concerns of UK lenders.

Howard O’Gollegos writes for Just Commercial Mortgages the UK’s No.1 site for the latest commercial mortgage rates and commercial property finance news.

Mortgage Refinance, Mortgages

Smart Questions to Ask about Mortgage Funds

Jul 20th, 11 / 0 Comments

Mortgage funds are mutual funds which invest in mortgage loans, creating income for investors from the payments the mortgage holders make as they pay off their mortgage loan. Mortgage funds are typically considered to be less risky investments than equity or bond funds. Keep in mind low-risk is not the same as risk-free.

Mortgage loan interest rates are typically higher than interest rates on other debt securities like bonds or GICs with the same time to maturity. Similarly, mortgage funds usually provide a higher level of interest income compared to bond funds. Mortgage funds are appropriate for those who desire interest income for short-term needs and for people looking for a conservative savings vehicle for retirement investments.

Mortgage funds are relatively secure investments. They typically maintain the majority of the portfolio in mortgage-backed securities, and a minor quantity in cash and perhaps bonds.

Because market values of mortgage loans change as mortgage loan rates change, mortgage mutual fund values can fluctuate.

What should you review in a mortgage fund?

Review the company managing the fund. Are they an investment company, financial institution or a organization focused on commercial mortgages, like a mortgage investment corporation?  If they specialize as a commercial mortgage lender, analyze the experience of their mortgage loan appraisers.

Consider the mortgage loan fund’s track record. How consistent is the monthly income to investors?

Review the actual returns. All funds have a management fee. Most mortgage funds charge high management fees compared to money market or bond funds.

Check into the properties supporting the fund. Are they residential or industrial? Some mortgage funds may only be made up of commercial mortgages, providing industrial real estate financing which includes retail, commercial, or hospitals and multifamily residential properties. These mortgage funds can be interesting possibilities due to the fact these are industry sectors which are generally under-serviced by financial institutions and other big financial institutions.

Whilst mortgage funds might be a good addition to a balanced portfolio because they can offset rate volatility typical to other investments, like equities. If appropriately selected, they can be relatively safe investments with a very low chance of loss over one year. Make sure you check into the charges of mortgage funds as they can be relatively high, affecting your net investment.

Mortgage Refinance, Mortgages

Forget About Buy To Let Mortgages, Have You Considered a Let To Buy Mortgage?

Jul 16th, 11 / 0 Comments

If you get a new job that is quite a distance from your home, or you want to send your children to a school that’s not close enough to home and don’t want to sell your home, what options are available? Let to buy mortgages are one of them. ..

So the question you’re asking is, why not just go for a buy to let? Many reasons, you might not want to sell your existing house for whatever reason, but have to move because of work or a new child in the family. But at the same time keep the same house as a back up or even as a long term investment.

One of the problems with a let to buy mortgage is that you must inform your existing mortgage lender that you intend to let out your current property. Some lenders will have no problem, and others will require certain checks and may ask you to switch to a buy to let mortgage or similar – you will need to check with them to see what their requirements are.

What Are Let To Buy Mortgages All About? The bank will assume that your existing mortgage repayments will be covered by the rental income earned from the tenants, so they will assess your affordability for the new mortgage without taking the existing one into account.

What Interest Rates Are Available On Let To Buy Mortgages? Rates for let to buy mortgages vary significantly from lender to lender.  Whilst current mortgage rates are around 5 per cent, this may increase over forthcoming months following hints from the Bank of England that interest rates are set to rise to combat inflation.

Let To Buy Requirements Will Be… The lender would insist on your current home (the soon to be rental) being valued and surveyed, the same would go for the house you wish to purchase. For the rental, the potential monthly rent charges would have to be figured out, but the surveyors will also cover that. They are the only added requirements, the rest are the usual requirements in obtaining a mortgage, payslips, credit checks etc.

If you feel your current home is going to rise in value very well in the future, but have to move to larger house or closer to work, then let to buy is a very healthy option to consider or take on as a solution.

What Deals Are Available? Interest rates on let to buy mortgages at the moment are in the region of 4-5%, depending on the lender and how much deposit you put down up front. Bear in mind though that interest rates will increase later this year so now is the  time to take action.

One potential issue is that your existing mortgage lender may not allow you to let your property based on the terms of the mortgage you initially signed. This can be dealt with by switching your mortgage policy, which is something most experts recommend you do every few years anyway.

Another pitfall to watch out for is if your property has leasehold. Double check the leasehold allows you to rent out the property or it could lead to trouble. Speaking to an Independent Financial Advisor or Mortgage Advisor would be the best course in this regard.

Howard writes for Just Commercial Mortgages.com the UK’s No.1 site for the latest commercial mortgage rates and commercial property finance news.

Mortgage Refinance, Mortgages

Buying Commercial Property – The Benefits and The Drawbacks

Jul 11th, 11 / 0 Comments

Buying your own commercial premises can add some real value to your business, so it’s a great idea.  But it is a big thing to do and so you do need to think about it carefully and ensure that you’re making the right choices.  In this article we look into the good and bad bits of getting a commercial property and commercial mortgage.

Pros: There are plenty of advantages to buying your own commercial property.  One of the main reasons that many companies take out a commercial mortgage is that the repayments are often the same as rental payments.  Indeed it can often be cheaper to pay a commercial mortgage then your monthly rent.

Another good thing about commercial mortgages is that you can fix the rate of interest, so you will always know what the repayments will be – well, at least for the ‘fixed interest’ period, which is usually anywhere between 3 and 10 years depending on what you prefer to do.  This means that you are a little more stable, as often when you are tenant your rental payments can be increased at any time often with little or no warning from the landlord.

Subletting, if your property is large enough, or you bought big thinking of future expansion, then why not higher space out to another small business in the mean time? Through this option you can cover a last chunk, possibly even the whole mortgage payment by taking this option. The only pitfall here to check on is with your commercial mortgage lender, you might need permission to take this action.

If you do buy a property that is slightly larger than you need and rent part of it out to another business, you can also sit safe in the knowledge that you have the space there to expand the business later on if needed. This is a great way to go about it as selling the premises and buying a larger building can be costly, especially if there is an early repayment charge on the commercial mortgage.

Owning your own commercial property means that you also benefit from any appreciation in the value of the property.  Property prices tend to rise over the long term and so owning property means that you will benefit from any increase in its value when you come to sell it at a later date.  Furthermore, the interest payments on your commercial mortgage are tax deductible.

Cons: In two words, the deposit. Even in a booming property market, commercial mortgage deposits are eye wateringly high, you can expect the average deposit requirement to be circa 30% to 50% of the valuation. This could significantly drain cash out of your business which you made need for expansion or a rainy day, so think and plan carefully before you take a commercial mortgage on.

It will also be a more drawn out process if you need to relocate as well as an expensive one, either to expand into larger premises or because your location is not attracting much business, so think about the location and property size before entering into a commercial mortgage which may be difficult to get out of in the first few years.

As for the last round of negatives: the costs don’t stop with a just the mortgages, half a dozen insurance types and policies will be needed, liability, contents, building etc. Then let’s not forget the maintenance costs, which have to be dealt with quickly especially if you are subletting to other companies, so you can expect to fork out for any damage or maintenance needed that happens on their part of the property.

If you’re looking for solid grounding and foundations for your business (with an eye on future expansion) then taking on a commercial mortgage can be the more beneficial option to take. All we can say is just don’t go in blind, do your research and impartially balance all the positives and negatives and be firmly committed to the idea of a commercial mortgage.

Howard O’Gollegos writes for Just Commercial Mortgages the UK’s No.1 site for the latest commercial mortgage rates and commercial property finance news.

Mortgages

So, What’s The State of the Commercial Mortgage Market? Will I be Able to Get One?

Jun 30th, 11 / 0 Comments

If you are in need of a mortgage on your business property, there are many different reasons why a commercial mortgage can assist you.  Owning your business property is actually an investment in itself. It can also help with longer term financial needs, as you are able to select a fixed rate mortgage so that you know exactly how much will be going out each month.

A current issue, however, since the recent market crash is that the lenders are not quite so happy to allow mortgages for smaller companies.  Cash to expand your company or to buy business premises is scarce and so it has become harder to agree lending with a bank or other financial institution.  Whilst banks are continuing to lend billions of pounds to small businesses, it is vital that you follow these four steps to improve your chances of being approved for a commercial loan.

Get a Large Deposit Together: A lender wants to see that you are committed and that you don’t see yourself as a risk by putting down a good deposit on your property. And remember whatever you put on the property as a deposit will be owned by you outright from day one. So if you put down 50% of the property value you’ll own 50% straight away.

A deposit on commercial property is usually much more than on personal property – usually 25-50%. So you will need some good funds built up before you think about buying business premises.

Have a brilliant, well thought out business plan: A well researched, well thought out, realistic business plan will go a long way to increasing your chances of success when applying for a commercial mortgage. Your commercial lender will want to go through the plan in detail.

If your business plan is inaccurate or incomplete, it will make it very difficult for a commercial lender to agree a loan.  Only by being confident in your business plan will they consider advancing the funds you need.

Show that you can responsibly manage debt: One of the best ways to demonstrate that you will keep up repayments on a commercial mortgage is to show that you have responsibly managed other financial commitments.  If you have made all your payments on time in the past, it is likely that you will do so again in the future.

Show any potential lender proof that you have always made your payments to loans or other commercial borrowing.  Demonstrate that your rent has always been paid on time and that your company credit card payments are in order.  If you can prove that you have a track record of managing debt responsibly, a commercial lender is much more likely to agree your borrowing.

Be Prepared: A commercial mortgage lender is not going to lend to anybody without making a few enquiries first. Whether it be about your current or past financial status, the integrity of your Directors and Shareholders or how you sit financially be prepared to answer questions about you and your business.

Not only will knowing your business make your application stronger, it may also help your application to be dealt with much quicker which is always more preferable when buying a property.

Howard writes for Just Commercial Mortgages.com the UK’s No.1 site for the latest commercial mortgage rates and commercial property finance news.

Mortgages

For Struggling First Time Buyers, Shared Mortgage Schemes Might be the Only Hope.

Jun 9th, 11 / 0 Comments

The tough financial climate and the squeeze on people’s wages has forced many of us to be inventive when it comes to financing mortgages. There are many new approaches to putting down a deposit and paying all the additional costs that go with home ownership.

Well this is where shared ownership mortgages come in. It’s when you buy half of a property, and another organisation, usually a housing association, will buy the other half.

The partner in this scheme will usually take a minority share (or up to a maximum of 50%), so to use as an example a mortgage of £160,000, if the housing association took 50% stake in this property the mortgage you would be looking to finance would only total £80,000. Yes you would only own half the property but at least you are now on the property ladder, consider it an investment.

As well as making the repayments to your mortgage, you will also typically have to pay rent to the association that owns the other part of the property.  This makes owning the other part of the property worthwhile for the housing association or company.  The rent is typically quite low, however, as the point of shared ownership is that it is aimed at you if you aren’t a high earner or can’t afford a mortgage for the total property value.

Most lenders are more lenient where shared ownership mortgages are concerned, because they do in fact have the security of the funding from the housing association or other party, so in some cases they will actually lend you the full amount of your share of the property depending on the value. They will however, also factor in the rental costs into their budgeting which may reduce the amount they will lend.

One popular method used within shared ownership schemes is called ‘staircasing’.  This is where you are able to buy further portions of the property from the housing association at a later date, increasing the share of your home that you own.  Not all schemes offer this, but it is a good option to have if you can.

The most basic problem that any prospective home owner has is the lack of a sizable deposit to put down on a property. Shared mortgages have grown in popularity in recent years hem, precisely because of this fact.

Perhaps the best place to start when considering a deal of this nature is to speak with a financial adviser or mortgage broker. These are the kinds of experts who know the shared mortgage market and know which lenders actually offer them and under what conditions. A broker or advisor may charge a fee but this is ultimately worth it in the long run if it connects you to the best deal for you.

If you aren’t the sole owner of a property, then it is always worth noting that if you wish to make changes to your home you will need permission from the other party. Many home owners like to add value to their property by extending it or building features such as conservatories, this will need consent from the other owner first.

There are not many other ways for people on low incomes or by themselves to get onto the property ladder, so make sure that you explore this option before settling for a shared mortgage with friends, or a guarantor mortgage as it means you can buy into a property without anyone else, other than the housing association, being involved which is often desirable for many first time buyers.

Howard writes for Just Commercial Mortgages.com the UK’s No.1 site for the latest commercial mortgage rates and commercial property finance news.

Mortgages