Although it’s been around since the 1970s, it seems that shared ownership schemes are still poorly understood, particularly amongst the younger generation. When asked about the scheme, only 40% of 18-24 year olds were aware of it. A quarter of these didn’t know what shared ownership was, so that means only 1 in 3 young people even understands what shared ownership is and how it could help them.
What Is Shared Ownership?
The most common misunderstanding is that shared ownership is the same as joint ownership - an easy mistake to make. However, shared ownership doesn’t mean buying a home with someone else; it means buying a portion of a home (between 25-75%), and paying rent on the rest of it.
How Can Shared Ownership Help New Buyers?
The scheme is part of the government’s Help To Buy program, which aims to increase home ownership amongst young people. As such, it isn’t open to everyone; only first-time buyers, and those whose combined income is below £80,000 (£90,000 in London). It’s designed to make your initial deposit stretch much further, because you’re only contributing to a small portion of the house’s purchase price.
For instance, let’s say you were going to buy a £250,000 house in the suburbs of Cardiff. Your £15,000 deposit, carefully saved up over the last 5 years, is only enough for a little over 5% of the asking price. That means high interest rates, which are hard to sustain. Instead, you decide to only purchase 25% of the property - £62,500. Now your deposit is almost up to 20%, giving you much better chances at finding a cheap mortgage deal. You’ll pay rent on the rest of the property, but this can often work out cheaper and more manageable than the alternatives.
What Houses Can You Buy?
Not all homes are available under this scheme. Most are newly-built, although some older houses are being sold by local authorities. It’s important to note that under the terms of shared ownership, the property will be sold as a leasehold rather than a freehold (which a house usually would be). This means you own everything inside the home, but the company you’re leasing it from owns the structure and the land it stands on. If you decide to buy the freehold this can be very expensive, even if the company has previously agreed on a price, so be wary.
Raising Awareness Of Shared Ownership
As we’ve seen throughout recent years, home ownership is dropping amongst the younger generation. Continuing uncertainty about the future, rising house prices and falling wages have all combined to make home ownership far less attractive than it once was. To improve the visibility of shared ownership it’s important to show the benefits it can bring; bringing property within reach, and enabling owners to accumulate wealth.