For many years, shared ownership was a rather specialist and quite uncommon means of purchase as most people understandably want to purchase an entire property rather than part of a property! However, as house prices have increased by 4.3% on average every year since 2011, it is becoming more and more difficult for people to both save enough deposit to buy a property and earn enough money to meet the mortgage lending required to purchase a whole property.
For those who aren’t entirely clear about what shared ownership is, essentially you would purchase a share of a property (normally a minimum of 25%) rather than the full 100% value. You would still be able to live in the whole property however the local authority would own the other share of the property e.g. 75% if you owned 25%. You would take a mortgage out on your share and would pay your mortgage back per month as usual, but the local authority would also charge rent per month on the share that they own as well.
What are the benefits of shared ownership?
Purchasing through shared ownership has several benefits for new home buyers. Let’s use a £200,000 property as an example and let’s say that you are buying a 50% share:
- First and foremost, with shared ownership you can buy a property for much less than you would on a standard purchase. If you were buying a 50% share you would actually purchase the property for £100,000 rather than £200,000.
- Secondly, your deposit would be a lot less than if you were getting a standard mortgage. If you were buying at £200,000 you would normally need at least 10-15% deposit which would be £20 – 30K. If you were buying 50% at £100,000 your deposit could potentially be as low as £10-15K which could make all the difference!
- A shared ownership property and the mortgage you get with it is designed specifically so that you can have the opportunity to own the entire property eventually, should you wish to. Most people who stay in their shared ownership property look at something called staircasing. This is where you remortgage the property as your own circumstances change (e.g. salaries increase) and purchase more shares of the home off the local authority with the intention of being able to buy 100% shares eventually, completely removing the rental aspect of the home.
It is only in recent years that more banks and building societies have started to jump on the shared ownership band wagon as more lenders begin to realise that this type of purchase is going to become more commonplace as house values keep creeping up. One lender who has been offering shared ownership mortgages for a long time is Leeds Building Society. In a report recently release, Leeds BS have spoken about a strong upward trend in shared ownership applications that they have noticed.
What are the figures?
They have reported that over the last three years, the number of shared ownership borrowers across the country has increased quite significantly. Borrowers in the South East increased from 23% in 2019, to 28% in 2021, while in the East Midlands, the number increased from 8% in 2019, to 10% in 2021 and from 7% to 9% in the West Midlands. Levels of shared ownership buying in greater London has remained steady, according to Leeds Building society, up at 13% over the last three years, while levels in the North West and Yorkshire fell, from 12% to 8% and from 6% to 5% respectively.
What do the lenders say?
Leeds Building Society director of mortgage distribution Martese Carton says: “London has traditionally been associated with shared ownership due to its high property prices, but it’s interesting to see homebuyers in other regions taking advantage of the scheme and demonstrates how it has the potential to help us bring home ownership within reach of more people in areas across the UK. Shared ownership offers FTBs, an opportunity to step onto the property ladder, as it’s a way to bring down the size of the deposit they will need.”
What do the advisors say?
Content Manager at Oportfolio Mortgages Louis Mason had this to say: “From 2016 until 2020 I worked primarily in the new build mortgage sector helping first time buyers and home movers alike purchase properties in all areas of the country. For the first three years of my work, we were inundated with help to buy applications as this was the dominant scheme at the time. However, something seemed to change in the last couple of years and a lot of people started to shift to looking at shared ownership instead and I saw first-hand how shared ownership really helped people get on to the housing ladder.
Good, hard-working, aspiring homeowners who would have otherwise been brushed aside by more affluent people were able to buy their dream property in a more manageable way than before and neither the home builder nor buyer was really losing out at all. I see shared ownership becoming one of the dominant ways of purchasing in the next 10 years, especially in places in the south like London and to be honest, if it helps people to get out of generation rent, then I’m all for it and we are here to help anyone who needs it.”
If you or anyone you know is interested in shared ownership or wants to discuss anything that you have read in this article today, please feel free to give our helpful expert advisors a call for a chat.