Can shared ownership help solve the housing crisis?
By Rob Carter, Marketing Manager at Guinness Homes
The housing market is slowing and prices are expected to continue falling, but customer demand in buying their first home is still there, it’s just not currently affordable for many. With prospective buyers currently facing additional pressures such as rising inflation, the ongoing cost-of-living crisis and skyrocketing energy bills, mortgage lenders are growing more hesitant and in some cases are unable to lend due to a lack of financial security.
With consumer confidence affected in the face of these headwinds, shared ownership could be the answer for prospective buyers and pave the way to home ownership. By providing a secure and trusted alternative to traditional sales or rentals, this forward-thinking approach enables buyers to get on the property ladder with a smaller deposit and take control of a seemingly unmanageable market.
Shared ownership allows buyers to purchase a percentage of a property from the housing developer, typically between 25 and 75 per cent, with a reduced monthly rental payment to be made on the unpurchased shares. The deposit is calculated from the percentage of shares purchased, meaning that a much smaller payment is required up front, making it more affordable for prospective buyers who may be struggling against strict mortgage regulations and hard-hit savings.
As a result, shared ownership gives more people the chance to own property, especially in desirable, city centre areas such as London, where the market is incredibly competitive from both a sales and rental perspective, with spiralling costs that many struggle to keep up with.
Whilst some buyers may have doubts around owning a share of their home at first, it is certainly possible to increase the percentage number of purchased shares over time, and therefore decrease the monthly rental payments, in a process known as ‘staircasing’. This is when shares in the home are bought in increments, with the owners typically purchasing an additional 5 to 10 per cent at a time, or, if they have a significant change in circumstance, buying an even larger amount in one purchase with a view to eventually owning 100 per cent of their home.
Despite the advantages that shared ownership brings, there is still a lack of understanding around what it actually is, which can lead to it being disregarded by potential buyers. For example, many people mistake shared ownership for another form of renting such as House of Multiple Occupancy (HMO), in which you rent a room in a house that is shared by others.
Many also believe that shared ownership is simply not an option open to them. However, unlike other schemes such as ‘Help to Buy’, which was exclusive to first time buyers, shared ownership is open to anyone over the age of eighteen as long as they do not already own a property portfolio, the household doesn’t earn more than £80, 000 a year, or £90,000 in London, and passes the relevant financial checks. It is an ideal solution for those who have previously been a homeowner and want to become one once again, as well as for people looking to downsize, or “right size”, as they move into the next phase of their lives.
For those who are interested in exploring shared ownership as a solution to current housing market fears, research is key to understanding the offering and determining if it is the right path forwards. Prospective buyers should monitor their monthly incomings and outgoings to calculate if this method of purchasing a home is affordable and at what percentage. If ‘staircasing’ is a goal, then planning a timeline for buying shares, and examining if this will be feasible long term, is crucial.
It is important to remember that whilst shared ownership is undoubtedly a more affordable route to owning a home, there are still costs to be considered, including mortgage repayments, monthly rent on unpurchased shares, and any maintenance fees attached to the property. Buyers should also seek the help of a financial advisor who will be able to provide tailored advice about their specific financial situation.
Ultimately, despite the current challenges and uncertainty within the property market, most people do not want to put major milestones, such as home ownership, on hold. With applications now closed for those looking to use the Government’s ‘Help to Buy’ scheme, creative solutions are needed to help people navigate the housing crisis, and shared ownership is one option that will help many towards homeownership. However, without the right visibility and understanding of what it entails, many could miss out on the opportunity to own their own home.