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With shared ownership buyers can purchase a share of a property and pay rent on the rest. The share is usually between 25% and 75% and they must buy the maximum they can afford. On some homes a minimum initial 10% share can be purchased.
People can buy a home through shared ownership if both of the following apply:
One of the following must also be true:
The average market value of a shared ownership property is £245,000 [ons] which is similar to the average price of a property across England, however, the minimum required to purchase is 10% with the average initial equity being 40% equating to £98,000. [source tbl 697, 2019/20].
The purchaser has the option to purchase a stake between 25% and 75% of the property from a housing association (a not-for-profit organisation that supplies housing), and pay rent usually 2.75% on the remaining share
Example: Say you've bought a 25% share of a £180,000 property, worth £45,000. The monthly payment would split into two parts, 1) a repayment on a mortgage and 2) a monthly rent.
If the purchaser put down a 10% deposit (£4500), the mortgage required will be for the remainder of your share, i.e., £40,500, or £186.83 per month. The housing association charges rent on the share that it owns. This would amount to £309.83 a month. Therefore the total amount payable each month would be £496.66 per month.
The scheme allows those with lower deposits and incomes to get on to the housing ladder and start their property ownership journey.
Size of the market
There are 200,000 [source] households living in shared ownership homes in England. This represents less than 1% [source] of all households. In 2020, the government announced a new model for shared ownership as part of the £11.5 billion Affordable Homes Programme which is due to be delivered over the next five years to provide 180,000 new homes across England. [source hoa.org.uk]
Today, the average house price ratio is 7.8 times the average salary. This is far higher than 2010 where the ratio was 6.9 And over the period, house prices have grown by 38% in contrast to earnings which was 21%.. The largest proportions of buyers are single adults who are aged between 30 and 39. Despite the increasing gap between house prices and wage growth, starts and completions of affordable homes have been on the increase, this is certainly encouraging with home ownership accessible to many more people.
Starts and completions for shared ownership properties have been on the rise since 2015/16 and support the growth of the sector due to affordability pressures on new homeowners.
Table 1: Starts and Completions of Affordable Homes.
Shared Ownership and other schemes to support home ownership
There have been number of government backed schemes to help first time buyers. They offer flexibility with some caveats in order for people to get on the housing ladder. The table below highlights the key differences between the schemes. As we can see below, there are restrictions in relation to where you can purchase a property, income levels or whether homes are restricted to new builds only. Shared ownership offers the greatest flexibility to home ownership.
Table 2: Summary of differences between Shared Ownership, Help to Buy, First Homes and 95% mortgage guarantee scheme.
The average market value of a shared ownership property across England is value £245,000 and Table 3 below shows monthly expenditure amounts needed on the various housing schemes.
The traditional mortgage and average monthly rental figures are the highest expenditure amounts whereas in contrast, the monthly expenditure from a shared ownership 25% or 50% equity stake are the lowest amounts.
With shared ownership, a 25% and 50% equity stake will provide a £614 and £712 monthly expenditure, by comparison HTB, the traditional mortgage route and rental are potentially higher cost options to own a new home.