Back in the day, purchasing your first home was much easier. We know that this has become a bit of a cliché, but it’s true! 20, 30, 40+ years ago, buying a home in your early 20’s was something that was expected to happen. In 1983 the average price of a house in the UK was only £27,363. Even in 2023 that is worth roughly £95,000. Mortgage affordability was much kinder and a lot of lenders offered 100% mortgages so you didn’t even need to put down a deposit! Those days are now gone and getting a mortgage on a property as a first time buyer can be much more difficult, without the right guidance. That’s why a lot of people are looking at other purchasing options and schemes to get on the property ladder. One of these is shared ownership.
What Is Shared Ownership?
Shared ownership is a housing scheme designed to help buyers (not necessarily first time buyers) to purchase a property, which they would otherwise struggle to purchase with a standard mortgage. Shared ownership allows the buyer to purchase a share of the property rather than 100% initially. They would presumably have a mortgage on the share that they own. The other share of the property that they don’t own will be retained by either a housing association, local council, or an independent company. The new home owner would pay their mortgage on the share that they own per month and would also be charged rent on the other share that they don’t own.
How Does Shared Ownership Work?
The idea of shared ownership is that you can get onto the housing ladder without breaking the bank and overstretching your finances and debt. Eventually the ideal outcome of shared ownership is that you will be able to afford to purchase 100% of the shares in the property as your income increases over time. This is done through incremental remortgaging and is referred to as staircasing.
Let’s have a look at a shared ownership example to demonstrate how it could benefit a first time buyer.
A one bedroom apartment is for sale in Putney, South West London, a very desirable and sought after area, for a full price of £520,000. For anyone looking to purchase this property on a straight mortgage, they would probably need to put down around £52,000 deposit at least. Their mortgage would be at least £468,000 and they would need to earn at least £104,000 per annum to get that mortgage affordability. If you secured a mortgage rate of 4% and took the mortgage for 40 years, your payments would be around the £2,000 a month mark.
With shared ownership, a potential buyer is able to buy a minimum 25% share of the apartment which would work out to £130,000. Essentially buying that apartment for as little as £130,000. Again, they would probably need to put down a minimum of 10% deposit themselves which would be only £13,000. Their mortgage would be £117,000.
If you were able to secure an interest rate of 4% and also took the mortgage for 40 years, your monthly payments would be £489 a month. Now, because you are doing shared ownership, you will need to pay rent on the other 75% of the property. This could be around £800 – £900 a month. There may or may not be a small monthly annual service charge on the property, so lets add another £100 a month. That’s just under £1,500 a month to own a £520K apartment in prime London. For other areas of London and the country, this figure could be even lower.
Why Do People Want To Re-Name Shared Ownership?
Some brokers have suggested that the name ‘shared ownership’ alone is putting off potential buyers from getting on to the property ladder. Of course, the idea of buying your first home is that it is YOUR home. The idea of sharing a property when you are trying to get away from generation rent is often not very appealing to people, despite how essential it might be. As a broker based in London, we at Oportfolio have lots of dealings with shared ownership properties and it can be glaringly clear when someone is not keen on the concept.
John Philips, director at Just Mortgages has echoed this saying:
“We get tremendous feedback from across our broker network about all mortgage types and there is clearly an issue to be addressed with shared ownership. Recent anecdotal feedback from some younger borrowers revealed that they actually thought shared ownership meant sharing the property and not living on their own. Those who are slightly longer in the tooth may be tempted to scoff at this but our market is full of jargon and terminology that is completely unfamiliar with a new generation of borrowers and people with new borrowing requirements.
“I’m worried that the terrific opportunity shared ownership provides to help people get on the property ladder is being diminished through clumsy terminology so maybe a rebrand is in order. Shared deposit scheme, low deposit scheme and deposit deferral scheme are just some examples of terms that would position the product in a more appropriate light. I think any re-branding or re-positioning would benefit the whole industry and we would welcome the involvement of lender and broker trade bodies to support this.”
Is Shared Ownership A Good Idea?
We at Oportfolio are big fans of anything that can make a buyer’s life easier and we love to see people getting the property that they want. If that means that they need to do shared ownership to achieve this home ownership dream, then we are all for it. Obviously shared ownership doesn’t work for everyone and it might make more logistical sense for someone to purchase a property on a regular mortgage. In areas of the country where prices are high and saving a 10% deposit as a first time buyer is next to impossible, shared ownership is definitely beneficial. Our job as mortgage advisors is to go through all of your options with you and to help you determine the best way forward.
If you or anyone you know is considering purchasing a property and wants to see if shared ownership is a route forward for you, please give our team a call today. We are more than happy to sit down and talk you through your options.