In this guest post, Adrian Plant, Director of Condominiums at Leaders Romans Group and Calum Toone, Mortgage Advisor at Mortgage finderdive into the growing interest in condominiums and how this mortgage alternative can help the “annuity generation” gain a foothold on the ownership ladder.
Despite recent rumors of the housing bubble bursting, property prices continue to rise. The average house price reached £354,564 in March 2022, bringing the annual rate of increase to 10%. It’s good news for landlords, but it doesn’t help ‘generational rent’ – the large number of potential first-time buyers, who are struggling to save the £59,000 needed for the average deposit in today’s market. This is a task made even more difficult by the rising cost of living this year.
For many of these first-time buyers, condominiums are an affordable option to help them get on the property ladder, without such a large deposit. And as the cost of living continues to rise, interest in condominiums will only grow.
This means increased demand for condominium mortgages. As a specialized product, consumer awareness of loan options is lower. Therefore, mortgage brokers should be prepared for an increase in condominium enquiries.
Brokers have an important role to play in consumer awareness and buyer education. But what are the advantages of condominium mortgages and what to consider when advising consumers?
Calculating the Benefits of Condominium Mortgages
Not all high street lenders offer fractional ownership products, so it’s important to understand how they work and what’s available to consumers.
Since the buyer is only buying a part of the property, the mortgage covers the part he will own, while he will pay rent on the remaining part. Deposits can also be as low as 5% for a condominium mortgage, but we recommend that buyers always pay more of this deposit if they can, as this will increase the loan options and rates available.
While that means a slightly large lump sum up front, it’s still a lot less than a residential mortgage and works out cheaper over time if you’re able to access lower interest rates.
One of the most common questions we receive concerns the expenses of the mortgage on the part of the property combined with the rent on the remaining part.
But with an average rent of around £1,000 a month, we usually find the mortgage and rent will be less than they were paying as a tenant. Plus, it’s more beneficial in the long run because they’ll own part of the property at the end.
Brokers can also assess their finances to recommend that they buy the largest share they can afford. Because the larger the share, the lower the rent.
Credit history assessment
Brokers should also be able to recommend the best product for the customer, based on their situation and credit score.
This is especially important for those with complex credit histories. Of course, this is important for all mortgages, but with condominiums seen as a more affordable option, we are seeing customers with lower credit scores applying for loans.
Many consumers don’t know their credit score, and even a missed card payment can impact it. But it is the most important tool to have access to the best interest rates. Although many online mortgage calculators tell you the best rates, these are not available to all clients, especially with complex credit, so brokers should advise on the importance of increasing the rating credit or be aware of the options available to you. Again, increasing the deposit, in 5% increments (e.g. 10% or 15%) can also help access better rates to offset this to some degree.
Climb the Mortgage Staircase
Once the buyer has their mortgage and has been in the property for a few years, they can consider buying a bigger share. Here brokers can advise buyers on how to stagger their share of the property when the time comes. Staircase is the process of increasing the share of property by steps, or “stairs”.
Although the government has been pushing the introduction of the escalator option a lot recently, it is important for consumers to understand that the next step on the escalator usually only happens when your income or savings increase.
So if the buyer has a promotion or a new job with a higher salary, has inherited the money, or has a pot of savings over time, they will be able to reassess their mortgage and their share will increase.
Again, a broker can provide guidance here, as in some cases it may be more beneficial for the client to remortgage rather than increase the level of their existing financing.
The path to condominium
Shared ownership allows first-time buyers to move up the ownership ladder and gain long-term stability without overburdening their finances. It’s also clearly popular with shoppers. So far, the Share to Buy website – which lists shared ownership programs across the country – has had one million requests.
With a better knowledge of the mortgage products available, brokers are an essential tool in helping these consumers find the right financing to put them on the path to co-ownership.