The current credit crunch, high house prices, and a increasingly competitive property market are all lowering the chances of first-time buyers being able to afford their own houses. One approach is for mortgage lenders to become more creative, offering 100 per cent plus loans and other incentives to encourage those struggling to raise a deposit.
Other loans such as shared ownership mortgages and home ownership plans are also becoming more common.
One form of mortgage loan that was sold widely at the end of the last decade was the Shared Appreciation Mortgage, or SAM. Unfortunately, this type of mortgage loan has undergone massive criticism.
Although a good idea in theory, many mortgage borrowers lost out enormously in deals that were thought to be completely unfair. Many borrowers took small zero per cent loans to buy their property, and then found that they owed enormous amounts when they came to sell. This has led to allegations of mis-selling, and pursuance of settlements.
Shared appreciation mortgages are a particular type of mortgage loan that are designed to give those struggling to get on the property ladder the chance to own their own property. The loans are particularly appropriate for first-time buyers who cannot save a deposit, or those borrowers who have a less-than-perfect credit score.
Are shared appreciation mortgages the same as shared ownership mortgages?
Shared appreciation mortgages are not the same thing as shared ownership. Instead, the lender provides the borrower with a high loan to value and a competitive rate, and takes a proportion of the profit when the property is sold.
What percentage of the profit do shared appreciation mortgage lenders keep?
This depends on the lender, the individual borrowing the money, the property and the terms of the loan. Shared Appreciation Mortgages sold last decade were particularly uncompetitive, and resulted in the current disgruntlement with this product.
I think I was mis-sold a Shared Appreciation Mortgage, what can I do?
One online site has been formed to unite those who have lost out at the hands of this mortgage product: The Shared Appreciation Mortgage Action Group.
The future may see this type of mortgage come back in a much more competitive form, as in theory it makes perfect sense.