More Options for First Time Buyers with Shared Ownership
Censeo Limited, a member of our panel of Mortgage Advisors provide an example of why there's hope for First Time Buyers and how Shared Ownership can provide an affordable alternative to traditional property purchasing options:
The traditional route into home ownership of living at home with parents or renting a property with friends for a few years, saving up a 5% deposit and then looking for a property to buy on the open market seems far removed from the harsh reality facing today’s first time buyers. In a relatively short period of time, say the last 10-15 years, getting onto the housing ladder, particularly in London and the South East, has become increasingly difficult. It seems as though everything that could happen to make life difficult has happened all at once, it’s like a perfect storm. Property prices have increased way beyond the rate of inflation, lenders have toughened up their affordability criteria making it harder to obtain a mortgage, high loan to value mortgages are no longer readily available and demand is outstripping supply to such an extent that multiple applicants are chasing every half respectable property that comes onto the market.
Shared Ownership gaining momentum as a purchasing option for First Time Buyers
Well, that’s enough of the doom and gloom so let’s be more upbeat and see what is available for those on moderate incomes and with limited savings seeking some independence and looking to invest in a property of their own. Being realistic, a large number of people in this category realise that the dream of buying a property on the open market is not going to happen unless some form of assistance is offered. For the lucky few this may be a sizeable deposit from the bank of Mum and Dad, but the majority need to look elsewhere. Well, you’ll be pleased to know this is where schemes such as Shared Ownership come into their own. Shared Ownership has been around since the mid 1980s, and in the last decade or so has started to gain serious momentum, so much so that a number of respected housing commentators see it becoming one of the main avenues into home ownership in the future.
How does Shared Ownership work?
Shared Ownership works by allowing you to buy a share of your home, generally between 25% and 75% of the property’s value, and pay a subsidised rent on the remainder. The precise amount of share is agreed at outset and you will be expected to buy the largest share you can afford. Further shares can be bought in the future until 100% ownership is achieved or you can stay put on the original share indefinitely. The majority of homes available through Shared Ownership are new build, although an increasing number (slightly more than 1 in 5) are existing Shared Ownership properties being sold on.
It all adds up to Shared Ownership
Shared Ownership comes under the broader heading of Affordable Homes and the word affordable is key. Let’s compare some capital costs based on a typical London property valued at £400,000. Buying a 25% share means that you need to fund £100,000 by a combination of mortgage and deposit. It is currently possible to obtain a 95% mortgage, which means the deposit required can be as little as 5% i.e. £5,000. With legal fees and mortgage costs generally being in the region of £4,000-£5,000 this means you can potentially get onto the housing ladder, in the example quoted, with less than £10,000 savings. This is definitely an attainable figure and should be within the grasp of most prosepective home owners. So it’s not all doom and gloom after all!
(All mortgages are subject to a full financial assessment and credit scoring process. Please contact your Mortgage Advisor for further information.)