Shared Ownership set to rise, but is it right for you?
5th August 2019
The government’s Help to Buy scheme has proven to be a godsend for more than 200,000 first-time buyers since the scheme was launched back in 2013.
But the scheme is winding down ahead of its 2023 end date, so many people will be looking at alternative ways of getting on the property ladder.
A recent report from real estate adviser Savills suggests demand for Shared Ownership will increase significantly.
Shared Ownership has been around for much longer than Help to Buy. It’s long been an affordable option for buyers without the financial means to raise a deposit or take on a large mortgage.
What is Shared Ownership?
Shared Ownership is a cross between buying and renting. To start with, you buy a share of the property – normally between 25-75% – and then rent the part you don’t own.
You can buy a bigger share in your home at a later date by ‘staircasing’. Eventually, you can own it outright.
Who does Shared Ownership suit?
Shared Ownership is ideal for those with low incomes and families who are looking to get on the property ladder but who lack the means to secure a large mortgage from a lender.
You can buy a property through Shared Ownership if your combined household income is lower than £80k (or £90k in London), and you meet any of the following conditions:
You’re a first-time buyer
You already have a Shared Ownership agreement
You used to own a home, but can no longer afford to
Who doesn’t Shared Ownership suit?
Shared Ownership generally works out more expensive in the long term than getting a regular mortgage. So if you have the financial means, you may not want to consider Shared Ownership.
How does Shared Ownership compare to Help to Buy?
If you use Help to Buy, you get a mortgage to buy 75% of the property. Then the government tops that up with a 20% loan, so you only have to find a 5% deposit.
With Shared Ownership, you can purchase as little as 25% of the property. That means the amount you borrow is much less.
Finally, Help to Buy is only available on new build properties, whereas Shared Ownership is available on different types of homes.
Is Shared Ownership a better idea?
Choosing between Help to Buy and Shared Ownership schemes really depends on your individual circumstances.
If you’re a first-timer looking to buy before 2023, Help to Buy is a ‘leg up’ that will help finance your new home.
But people on low incomes will likely prefer Shared Ownership, as it offers the freedom to buy as much or as little of a property as you can afford.
Here’s an example:
Under Help to Buy, you’d need a 5% deposit of £12,500 on a home that costs £250,000.
With Shared Ownership, you could buy a 25% share in a £250,000 home, and your deposit would be £3,125.
That explains why Shared Ownership is the right choice for many, and is definitely something to consider if you need some help to buy your own home.