Specialist lending has become a ‘vital lifeline’ for shared ownership

This is because the underwriting of these types of loans tends to be more complex.

Shared ownership is specifically targeted at borrowers who would not normally be able to afford to buy the property on the open market.

They may not have a large-enough deposit or the earning power to buy a property without the financial assistance provided by the scheme.

This is where specialist lending can help, as it approaches affordability from a different perspective.

Underwriting on a shared ownership mortgage will look at the ability of a borrower to make payments on both the mortgage and rental side of the deal.

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Paul Adams, sales director at Pepper Money, said: “Eligibility for a shared ownership property is reserved for those people who could not afford to buy the property on the open market.

“However, it’s important to clarify that being unable to afford a property at full market value does not mean affordability is disregarded in shared ownership.

“In fact, the ability to make sustained mortgage payments on both the mortgage for the owned section and the rent for the section of the property retained by the housing association is the single-biggest consideration in the underwriting of shared ownership mortgages.

“There are many variables in this regard. For example, a customer may be able to better demonstrate sustainable affordability if they purchase a smaller share of the property at the outset, and so an adviser has a vital role to play in weighing up the most suitable options.

“With affordability being such an important factor, it’s also essential that as much of a customer’s income as possible is considered towards that calculation.”

Additional income sources

It is also important to consider additional income sources, such as overtime, bonus, and supplementary employment.

This is traditionally an area where specialist lenders have developed a strong reputation as they consider each application on an individual basis.

“This is increasingly important in helping buyers to achieve the mortgage they deserve,” added Adams.

According to the latest Pepper Money Specialist Lending Study, 7.34 million people say they earn income from more than one job due to the cost-of-living crisis.

This allows specialist lending in shared ownership to open up more opportunities for buyers.

Many buyers may supplement low basic incomes with additional sources, to demonstrate the affordability they need to buy a home – even if they can’t afford to buy the whole property.

Missed credit payments

As well as being able to consider additional sources of income, specialist lenders can also help borrowers who miss out on a high street mortgage due to previous missed credit payments.

It might just be that a customer has a thin credit file, and so is rejected by an automated credit score.

Lending challenges

There are some entities that may have traditionally favoured applications from borrowers with a mortgage from a high street lender. These have, in the past, included housing associations.

However, Adams explained: “Household finances have become more complex and specialist lending has become more common; a mortgage from a specialist lender is no longer a hurdle to a shared ownership property.”

Specialist lenders can help

Tanya Elmaz, director of intermediary sales at Together, agreed, saying: “A lot of borrowers looking to buy through shared ownership may find it difficult to secure the finance they need through mainstream banks.

“With these applicants, specialist lenders like us can really help. We don’t operate on a ‘computer says no’ basis.

“Instead, we take a common-sense approach, looking at the full financial picture of each applicant to see how we can help them achieve their homeownership ambitions.”

She continued: “Homeownership is a struggle for many aspiring first-time buyers, with shared ownership becoming an increasingly popular path onto the property ladder.

“Younger buyers in particular often struggle with affordability and the ability to raise the significant funds needed for a deposit.

“It is worth considering too how the current economic climate has impacted applicants.

“Covid, the mini Budget, global instability – all have contributed to rising costs and also contributed to an increase in the numbers of customers who may have historic[al] credit blips due to circumstances beyond their control, and therefore will struggle to secure loans from mainstream banks.

“With housing prices at a historic high, shared ownership allows buyers to take advantage of the flexibility of low deposits and the ability to buy an increased percentage of the property over time.”

Being able to offer options

Elmaz explained that being able to offer a breadth of options to customers is crucial for brokers.

“Being aware of all the products and schemes available will allow brokers and intermediaries to best serve the ever-diversifying individual circumstances of customers and enable the delivery of best outcomes for all.

“Having a true picture of each application is key and this type of home buying process does bring its own set of challenges.

“Shared ownership properties are usually leasehold, meaning buyers could potentially be responsible for paying ground rent, service charges and administration charges as well as their mortgage and rent contributions.

“Service charges in particular have hit the headlines, with some tenants seeing larger-than-expected increases to their monthly payments.

“However, changes to the law through the Leasehold and Freehold Reform Act do seek to increase transparency around these charges levied by landlords,” she said.

Brokers’ increased understanding

The ability of specialist lending to help borrowers considering shared ownership is gaining awareness among brokers.

Darryl Dhoffer, managing director at The Mortgage Geezer, said: “Shared ownership is a popular route to homeownership, but complex financial situations can often hinder this journey.

“Specialist lenders offer tailored solutions to help these buyers overcome challenges such as self-employment, poor credit history, complex finances, or non-standard employment.

“By offering higher-loan-to-value [LTV] mortgages, comprehensive affordability assessments, and considering various income streams, specialist lenders can help buyers with limited deposits, low income, high living costs, or unusual income sources.

“While specialist lending offers significant benefits, it’s important to note that these lenders may charge higher interest rates and have a more limited range of products compared to mainstream lenders, and evolving attitudes from Housing Associations towards these lenders.

“Despite these challenges, these lenders empower shared ownership buyers to achieve their homeownership goals.”

Dariusz Karpowicz, director at Albion Financial Advice, said: “Specialist lending has become a vital lifeline in the shared ownership market, offering hope to buyers who find themselves outside the conventional lending box.

“Whether it’s self-employed professionals with variable incomes, individuals rebuilding their credit scores, or those with non-traditional employment patterns, these lenders excel at understanding unique circumstances where high street banks might hesitate.

“Specialist lending remains a crucial bridge for many aspiring homeowners who would otherwise remain locked out of the property market.”