Insight and events

The second article in our series attempting to debunk some of the common shared ownership myths examines the key differences between the Help to Buy shared equity scheme and shared ownership schemes, what advantages there are to shared ownership, and some of the pitfalls to be aware of.

My client has a low deposit. Is shared ownership the right option for them?

Shared ownership is one way for many prospective buyers who are looking to get on the ladder for the first time, move to a new area or buy a bigger property can take that step with limited deposits.

The average property in the UK was valued at £245,747 in August 2020, a 5.2% rise on the same month in 2019. It’s no surprise then that, among UK adults, 85% say saving for a deposit is the biggest barrier to home ownership¹. Shared ownership is one solution to this.

With shared ownership, you only get a share of the property you buy (often between 25%-50%), so you pay rent and mortgage and therefore are looking at much smaller deposits.

You can also obtain much higher LTVs than the rates available on standard mortgages (some lenders will offer 90% and even 95% LTVs, although these are getting increasingly few and far between) although it should obviously be encouraged to still put down as high a deposit as you can afford, to keep mortgage and rent costs down.

Kent Reliance for Intermediaries can even provide options for those with zero deposit.

The below example shows a comparison of the deposits and mortgage required shared ownership options (at 95% LTV):

What pitfalls are there to be aware of?

One thing to be aware of is that, unless your client is planning to staircase to 100% and thus buy the freehold, shared ownership properties are leasehold by definition.

This means, as well as rent, service charges to the housing association may be payable, which could increase over time (so it’s best to get an estimate of these if possible at the outset and do your research so nothing comes as a surprise).

It also means having to get permission from the housing association for any structural changes to the property, and potentially for anything like pets or subletting.

When it comes to sell, there are also things your client should be aware of – we will concentrate on this in a future article within this series.

Is Help to Buy a better option?

An alternative option could be the Help to Buy or ‘shared equity’ scheme, whereby the Government will lend 20% of the deposit needed to buy a new-build home, and the buyer will ‘only’ need 5%.

However, as the scheme is only available on new-build homes, they tend to be higher priced, so 5% of a deposit could still reach tens of thousands and they’ll still need to secure a relatively high mortgage amount.

Also, while the loan is free for five years, the repayments after this will start at 1.75%, rising by RPI+1% each year until repaid, adding a not insignificant amount to a seemingly small initial monthly or annual amount. Your client can alternatively repay the loan when they sell or pay off the mortgage.

Which option is best depends on your client’s individual circumstances, deposit amount, budget and likelihood of obtaining a higher LTV mortgage.

It’s also worth bearing in mind that the current Help to Buy scheme is ending in March 2021 for anyone who isn’t a first-time buyer, so shared ownership may become the only option for many of your clients after this.

Still unsure about taking on a shared ownership client? Give Kent Reliance for Intermediaries a try. We take a common-sense approach to mortgage lending and can find the right answers for your client. Check out our latest mortgage products.

¹ Deposit: Housing Association Homeowner Survey 2019