Made easy by Mint FS
Mortgage Protection Life Insurance
What is Mortgage Protection Life Insurance?
Mortgage Protection or Decreasing Term life insurance is a policy where your cover amount goes down or ‘decreases’ over time. This means that the monthly premium is lower than that of a level cover policy.
This type of policy is primarily used to cover those individuals with a repayment mortgage.
If you don’t die before the mortgage protection policy ends and you want to stay covered, you will need to take out another life insurance policy.
With shared ownership, you part buy and part rent a home from a housing association, allowing you to take out a much smaller mortgage than if you were buying the whole property outright.
Using shared ownership, you purchase a share of between 25% and 75% of a property from a housing association. You then pay rent of up to 3% on the remaining share – the rent is set by the housing association.
For example, if you bought 50% of a £100,000 flat, the housing association could charge you up to £155 a month on their share.
If you had a 5% deposit, or £5,000, you’d need to get a mortgage for £45,000 and make repayments on that amount.
If you wish, you can then gradually increase your share of the property until you own it outright – a process called staircasing. You can either pay for the extra share in cash or arrange additional mortgage lending to cover the cost.
Shared ownership is only available to first time buyers, those who have previously owned a home but can’t afford to buy one now, and existing shared ownership homeowners who want to move house.
Your household income must be less than £80,000 if you live outside London or £90,000 if you’re living in London.
In the past, certain groups such as teachers and nurses were given priority, but this now only applies to military personnel.
First, you’ll need to find your local Help to Buy agent, which you can do on the government’s Help to Buy website.
Your local Help to Buy agent’s website should contain details of how to apply for shared ownership.
You will be asked questions about where you want to live, what your income is and how much you have in savings, as well as your history with making credit repayments and debts. Your application will be assessed within around four days.
If accepted, you can start looking around for a shared ownership property. Your Help to Buy agent should be able to show you available properties in your local area, and you can also search the Share to Buy website for England.
You can book viewings through the relevant housing association and once you’ve found a shared ownership property you want to live in, you’ll need to put down a reservation fee. It’s typically £200, but could vary.
Although you’ll have already shared some financial details when applying for the scheme, you’ll need to go through a full financial assessment with the housing association. This will be carried out by an independent financial adviser.
They will typically ask to see:
- Three months of payslips
- Three months of bank statements
- Proof of Identification
- Proof of savings
- Information about existing debts and other credit arrangements
- Information about any benefits you receive.
You may also have to go through a credit check. Following this assessment, you’ll find out what kind of share you can afford, and what rent you will need to pay.
The mortgage adviser you deal with may also offer to arrange a mortgage for you. You don’t have to use their services, though, and are free to arrange a mortgage yourself.
Once you’ve passed the housing association’s financial checks, you’ll need to go through a similar process with a mortgage lender.
You’ll go through all the normal stages of a mortgage application, including a detailed analysis of your income and outgoings, which helps the mortgage provider decide whether and how much to lend to you.
However, when you’re buying a shared ownership property, two costs in particular will need to be factored in: the rent you’ll pay on the portion of the property that you don’t own, and the ground rent and service charges you’ll pay due to shared ownership homes being sold on a leasehold basis.
These costs are unavoidable with shared ownership, and could drag down the amount you could borrow if your monthly income is stretched.
If the costs combined with your mortgage exceed 45% of your overall income, you may struggle to pass affordability checks.
The market for shared ownership mortgages is not as big as that for all first-time buyers – but there’s still plenty of choice, with most high-street lenders and some smaller building societies offering shared ownership products.
Some lenders offer mortgages specifically designed for shared ownership. These tend to be smaller, regional building societies, which are often willing to lend at high loan-to-values – useful if you have a smaller deposit.
Be prepared to supply a lot of paperwork to these lenders, as they tend to use a process called ‘manual underwriting’, meaning there’s someone checking through all of your details (bank statements, payslips etc) to make sure you can really afford the loan you’ve asked for.
Big high-street lenders more commonly offer their first time buyer mortgage range to shared ownership buyers.
If you have bad credit issues – such as county court judgments (CCJs) or debt arrears – you may struggle to find a lender willing to give you a shared ownership mortgage.
Our analysis of the entire mortgage market found just three lenders willing to offer shared ownership mortgages to people who have had credit problems in the past.
1. Ground rent doubling clauses
Before committing to buy a shared ownership property you should check through the lease with a fine-tooth comb for any unusual or punitive clauses.
Some leases have a ground rent doubling clause that means what starts out as a reasonable-sounding ground rent of, say, £300 a year doubles every 10 or 15 years so that, in 60 years’ time, the owner will be paying £10,000 a year.
It can be very difficult to sell properties with ground-rent-doubling clauses, and the amount of ground rent you pay as a proportion of the property’s value has become a key consideration for lenders in recent years.
As a guide, many lenders will only approve a mortgage if the annual ground rent on a leasehold property is no more than 0.1% of the property value. For example, on a £250,000 property, many providers will only lend on properties with monthly ground rent of £250 or less.
Even if you do find a lender willing to give you a mortgage on a property with high ground rent, that doesn’t necessarily mean you should buy the property. Shop around and look at comparable properties to ensure that the terms of the lease are competitive compared with the rest of the market.
2. Restrictive covenants
Some leases contain a ‘restrictive covenant’, which might restrict what can be done with a property or the land it’s built on, or restrict how much it can be sold for or who it can be sold to in the future.
Whatever the covenant, it’s important to be aware of them early on. They can put mortgage providers off lending and are often only checked when you’re about to complete on your property purchase, when you may have already spent a fair amount on legal, mortgage and survey fees.
If you’re considering buying a shared ownership property be sure to ask the selling agent if they’re aware of any restrictive covenants attached to it. Also, always ensure your conveyancer checks the terms of the lease early on in the process so you can send these onto your lender in good time where possible.