For many first-time buyers, home ownership can seem almost impossible. With soaring house prices, especially in the capital, more and more young people are starting to see owning a home as nothing more than a pipe dream. Because of this, the Government has introduced a number of Help to Buy schemes to aid first time home buyers. The most prominent schemes come in the form of ISAs and equity loans, but one of the most beneficial programs, the Shared Ownership Scheme, is often overlooked.
Like every Help to Buy scheme, Shared Ownership comes with its share of pros and cons. In this article, we’ll explore whether Shared Ownership is worthwhile for you, or even if the scheme is worth pursuing at all.
How does Shared Ownership work?
While Help to Buy ISAs and equity loans are incredibly prominent in the minds of future homeowners, Shared Ownerships often seem to fly under the radar of many first time buyers. Despite this, these schemes are not a new idea, having been around for years under the ‘part buy, part rent’ moniker.
The Shared Ownership scheme allows two people with a total income of up to £80,000 (£90,000 in London) to own a home they otherwise wouldn’t be able to afford. A UK housing association will allow you to purchase a share of a property based on what you can afford. Having purchased 25% to 75% of the property with a mortgage, you’ll then have to pay an ‘affordable rent’ on the rest. As time goes on, you’re able to invest more into the property and buy more shares through a process called ‘staircasing’, with the end goal being that you’ll eventually own 100% of your home.
Who qualifies?
Of course, the concept of Shared Ownership is incredibly appealing to first time buyers, but who qualifies for Shared Ownership? Although aimed at first time buyers, the schemes are open to any two people – whether friends or a couple – willing to share the cost of a mortgage who are unable to purchase a full price home on the open market.
The number of Shared Ownership properties is limited and, aside from former members of the armed forces, the government does not require any groups to be prioritised, so it can be tough to find a suitable property. Similar schemes exist for over 55s and for people with long term disabilities; however, we’ll focus on the most common Shared Ownership scheme here.
Selling your home can be a tricky situation if you choose the Shared Ownership route. If you still only own a portion of your home, the housing association has the right to find you a buyer, as well as first refusal – meaning that you may have to sell the house back to them. Owning 100% of the property, however, is far more straightforward as you can sell freehold like any home.
The benefits and drawbacks
Although Shared Ownership may sound like the perfect way for first time buyers to get onto a progressively harder to climb property ladder, it doesn’t come without any drawbacks. As with any financial scheme, it’s a scheme that comes with both benefits and drawbacks, as we’ve illustrated below.
Benefits
- With levels of homeownership at historic lows, getting on the property ladder can feel entirely unachievable. Shared Ownership opens up the ability to own a home to thousands of people in low to moderate earnings brackets – and as prices continue to climb, it may be one of the only ways for this to occur.
- When it comes to London, Shared Ownership is even more appealing. In the capital, first time buyers are faced with both massive house prices and soaring rental costs. Believe it or not, moving from a one bedroom rental property into a Shared Ownership house can actually be a cheaper option.
- The ability to ‘staircase’ a Shared Ownership property until you own 100% is perhaps the most rewarding aspect of the scheme. Due to lower, more affordable rents, it’s likely that you’ll be able to put more money aside to invest into buying more shares of your property.
Drawbacks
- Due to the finite amount of Shared Ownership properties available, it can take a long time to be considered eligible for a property. Furthermore, despite the government assigning no priority to those seeking Shared Ownership homes, aside from military veterans, the same can’t be said for local councils. Many councils and housing associations will ensure that families and ‘key workers’ such as teachers or NHS employees are more likely to get a Shared Ownership property. Naturally, if you don’t fit into one of these groups, getting a house on the scheme can feel a lot harder.
- Another major drawback of Shared Ownership comes with the difficulties you may face when securing a mortgage for your property. Not all lenders are willing to give mortgages for these kinds of properties, so it’s a good idea to seek financial advice before committing to a scheme.
- As we’ve already mentioned, selling your house isn’t particularly straightforward while you’re locked into a Shared Ownership scheme. With hoops to jump through in regards to the housing association nominating a buyer, or executing their right to first refusal and buying it back, you may not get the best price for your property if you don’t own 100% of it.
- Although ‘staircasing’ to work your way up to 100% ownership is an incredibly beneficial aspect of Shared Ownership, it can also be a major negative of the scheme. As the value of your properties’s shares fluctuate with the housing market, the cost of staircasing can skyrocket if house prices increase, locking you into the rental for longer than you intended.
- Perhaps the most frustrating aspect of joining the Shared Ownership scheme is the fact that, despite paying a mortgage and owning a home, you may still have to deal with restrictions usually placed on renters. Under Shared Ownership, you won’t be able to make any major changes to your property without prior consent from the housing agency. Furthermore, despite owning a minimum of 25% of a property, you must take care of 100% of the update, including any repairs and maintenance necessary.
Is it worthwhile?
The government backs a variety of Help to Buy schemes so that people can utilise the scheme most beneficial to them. As such, the worthwhileness of the Shared Ownership scheme will change based on your personal circumstances.
It’s a scheme perhaps best suited to young couples who have no intention of changing their living situation for the foreseeable future. As you have little to no control over your house and, if selling before you own 100% of the property will likely come out of a sale with a bad deal, Shared Ownerships are most suited to couples who are unlikely to move house.
In short, for people confident that they won’t be planning on moving or intending to rent out their property in the near future, it’s an ideal scheme. Despite the potential price increases based on the housing market, the benefits are likely to outweigh the risks for most people. In cities such as London, where owning a home can seem utterly impossible for first time buyers, Shared Ownership can make buyers’ dreams achievable, for very little loss.
However, if you are able to save up a larger deposit, especially through the use of Help to Buy ISAs or government equity loans, the scheme probably isn’t for you. You’ll have more freedom, both with what you can do with your home while you live there, and you can look forward to a much simpler process when the time comes to sell.
Before making any major financial decisions, including joining Help to Buy schemes, we recommend seeking professional financial advice. Get in touch with the friendly IMC team and one of our experienced advisors will be happy to help.