How to get a shared ownership mortgage when you’re self-employed

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Today, we’re back with another money management post and we’re looking at shared ownership mortgages. Getting a mortgage can be really tricky when you’re self-employed. Your income isn’t as consistent and you’ll need a few years of tax returns from most banks. Whilst you still need this information to buy a shared ownership property, you may find it easier to get approved as you’ll be applying for a much smaller mortgage.

What are the main benefits of a shared ownership property?

The smaller mortgage that comes with shared ownership is why we chose to use the scheme to buy our first flat. Essentially, you purchase just a share of the property (typically between 30-50%) and pay a mortgage on this share. This may open up the option of different properties that you may not necessarily be able to afford otherwise. 

You then pay rent on the remaining % of the property (usually to a housing association) and in some cases, depending on who the property is with, the mortgage+rent combo is often cheaper than a mortgage on a 100% property. This makes it ideal for those who want something in between renting and owning a property outright; which can be a tricky transition!

Another benefit is that it also partially protects you from housing crashes. Our property actually slightly dropped in value but because we only owned 50% of it, it meant the loss was much less.

What are the disadvantages of a shared ownership property?

Of course, the downside is that you’re still paying rent with a shared ownership property. However, you can eventually purchase further shares in the property, working up to 100%. This is called ‘staircasing’. Not all shared owner properties allow you to do this immediately but it is a good option to explore down the line. 

In this case, it’s worth noting that most contracts have a clause in which you need to have the property valued by a surveyor before you can purchase further shares. The shared ownership company arranges this and then agrees on the price to staircase. Unlike buying a 100% house, there’s usually no room to negotiate the staircase. There are costs involved in  staircasing and this will vary pending on the housing association you are with. 

Selling a shared ownership property when you don’t own 100% of it can be a bit trickier, as your buyer needs to meet the criteria of the housing association. However this scheme is becoming more and more popular, and it is one of the easiest ways to get you to own your own home with minimal, or in some cases zero deposit. 

Some builders firms need to allocate a percentage of their build to low cost or affordable housing, hence why most shared ownership properties are new build (an advantage and disadvantage depending on how you look at it). Having an older property available with shared ownership might attract more attention as not everyone wants a brand new property. Another disadvantage is that some housing associations have restrictions on things like decorating, making changes and pet ownership’ – although we personally never had issues with this.

Tips for getting a shared ownership mortgage as a freelancer

Firstly, make sure you have all of your tax returns to hand. Some mortgage lenders are happy with just one year’s worth of returns but in our experience, we have found that most ask for two or three. If you’re new to freelancing but desperate to be a homeowner, it could be worth finding a job or accepting that you are going to have to wait a year or two until you do. Also, if you don’t have an accountant, it could be worth consulting one for this.

It’s worth delving into your accounts to see if you can meet the repayments, even in quiet months. The longer you’re freelance, the more likely you’ll recognise when quiet periods happen and how to budget for them. You may want to consider things like freelancer insurance and critical illness insurance since you don’t have the sick pay buffer that you would have in permanent employment.

You may need a specific shared ownership mortgage, given that buying shared ownership is a little different. These are a bit more limited but there are still plenty of choices out there. A good mortgage broker that specialises in shared ownership should be able to find you suitable options and compare things like interest rates and terms to find the best one for you.

It’s also worth making your calculations based on the mortgage and the rent you’re projected to pay as most mortgages will require you pass an affordability test and include rent in this too. Take a look at your contract and make sure to note down things like service charges and ground rent. Consider whether these are locked in or if they can increase at any time.

Finally, do remember if you are working from home permanently as a freelancer, you are able to claim interest on your mortgage payments and/or rent as part of your tax return. You can do this as a flat rate simplified living expense or, if you work full time at home like I do, it may be worth doing this as a more complex breakdown as a % of your rent or mortgage interest. This is a good guide for doing so. This might give you an idea of the possible tax implications of different properties and using your property to work from home.

I hope this guide has been useful for those who are freelance and looking to get on the property ladder via shared ownership!