Shared Ownership and Shared Equity

Tackling the challenge of home ownership for first-time buyers

Is Shared ownership/equity right for you? Let me explain Shared ownership and shared equity.

The past couple of decades of rising house prices have presented a problem for thousands of prospective first-time buyers. The average house price now stands at £252,000, following prices rising in every region of the UK for almost two years (1). Home ownership has plummeted for younger generations, with 41% of 25- to 34-year-olds owning their own home.

The evidence suggests it’s the upfront cost of purchase, including the size of deposit, that’s holding buyers back, rather than monthly mortgage costs. The average first-time buyer deposit stands at an astonishing £42,361 (2) according to the ONS. However, once this hurdle has been overcome, repayments only account for 17% of a first-time buyer’s income (3).

(1) ONS House Price Index (February 2020)
(2) ONS English Housing Survey 2018-19
(3) UK Finance (November 2019)
(4) Savills, Shared Ownership Spotlight (2019)

In a previous post for First Time Buyers, I mentioned that this was a route to property ownership for you.

It’s a fantastic route to property ownership for all, not just first-time buyers, but all potential homeowners.

Is shared ownership the silver bullet?

The Government has sought to ease the problem for first-time buyers, through the removal of stamp duty and the introduction of the Help to Buy scheme. The industry has also sought to provide innovative solutions to tackle the core problem of deposit-constrained buyers through the provision of shared ownership mortgages. For some reason though, shared ownership seems less well known, and it shouldn’t be.

There are already around 200,000 shared ownership homes in the UK4 and given the Government’s commitment to supporting affordable homes building, we can expect this figure to increase. In 2015 the Government announced a target of building 135,000 shared ownership homes, superseded by a £9.1bn commitment for affordable homes. In the 2019 Spring Statement, a further £3bn in funding support was guaranteed for housing associations. While we are yet to know what the next Chancellor’s Budget will bring for the property market, but we should be prepared to continue to see high numbers of shared ownership applications.

Shared ownership cases aren’t straightforward, and not all lenders support this type of mortgage. The complexity of the case, expertise required and the on-going relationship with housing associations, means many mainstream lenders’ more rigid lending criteria and automated underwriting struggles to support lending in this space. It’s vital therefore for brokers to know which specialist lenders they can turn to for flexible criteria and how lenders’ propositions match up to their client’s needs.

As house prices continue to push more prospective homeowners into longer periods of renting, shared ownership is an underappreciated option to help prospective buyers take their first step on the ladder. Moreover, it provides yet another opportunity for brokers to add value to their clients, cutting through the complexity. For it to become more fully entrenched in the marketplace, awareness of how shared ownership mortgages differ from traditional mortgages and the opportunity they provide buyers must become clearer.

What is SHARED OWNERSHIP

A Housing authority will offer a property for sale, where you purchase a share of the property say 50% of the market value – the housing authority retains the other 50% of the property and they will charge you rent on that half share.

You can start purchasing from 25% all the way up to 75% - You can purchase chunks or further shares along the way until you eventually own 100% of the property – this is known as “Staircasing”.

We can easily calculate how much you can borrow for a shared ownership mortgage on a shared ownership property.

What is SHARED EQUITY?

Shared equity schemes have been a feature of the mortgage market for several years and have primarily been offered by:

House builders
Local authorities, and
As part of government initiatives to help first time buyers onto the property ladder.

Typically, they allow you to combine a small deposit with a lower than average mortgage size by providing you with an ‘equity loan’, covering a percentage of the property’s value.

You might start to repay the equity loan gradually after a set number of years - or in full, including when you come to sell the property.

The value of your equity loan generally fluctuates with the value of your property, so the amount you’ll pay depends on the value of the property at the time you repay.

If you’re a first-time buyer, a key worker or are on a low or moderate income and are looking to get on the property ladder.

How much deposit do I need to put down?

Typically, 5% deposit for Shared Equity and Shared ownership purchases, but there are lenders out there who don’t require a deposit so you can buy a share in a property for 100% for shared ownership properties!

Can I buy the remaining outstanding share in the property?

Yes, this has to be an option for lenders to lend to you in the first place.

What if I have credit issues?

Certain lenders don’t like this, but others aren’t as fussy – It’s best to speak to a whole of market broker as they should have access to lenders that lend in this area and have products available for credit impaired applicants.

As you can see shared ownership and shared equity offer first time buyers and home buyers a perfect lower cost opportunity of getting onto the housing ladder than buying at full market value should your circumstances dictate otherwise.

I am always happy to talk through potential enquiries if you’re unsure on any aspect.

This article was written by our in-house mortgage adviser Andrew Ducksbury CeMAP.

Shared Ownership and Shared Equity

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