Alternative routes to home ownership: Educating borrowers on shared ownership

A lack of affordability has meant that homeownership has become an increasingly challenging milestone to achieve. In fact, rising deposit requirements have increased so much that The Building Societies Association’s latest First-Time Buyers report found that being a first-time buyer now is possibly the most expensive it has been over the past seventy years. This has then been exacerbated by a higher interest rate environment, lower than anticipated levels of house building, and a rise in demand for housing, leaving many first-time buyers to either largely depend on their parents for help or delay their home ownership plans for the foreseeable future. With the cost of living crisis having an impact on already tight affordability, this has meant that home ownership has become an increasingly more challenging milestone to achieve for many.

There have been positive developments, however, with the new Chancellor’s first speech to the Treasury announcing plans to return to higher levels of housebuilding (and indeed bringing back annual targets which were previously scrapped), this should hopefully alleviate some of the pressure in the coming years. Whilst there have been no plans announced to make any amendments to first-time buyer schemes such as the Lifetime ISA (LISA), reintroducing the Help to Buy scheme in some format, or the Right to Buy scheme, there remain helpful and popular pathways for first-time buyers to get on the property ladder.

Lack of understanding around shared ownership

Shared ownership is one such route, however, despite existing since the 1980s, The Mortgage Lender’s research found that just 35% of prospective first-time buyers can accurately define the term, indicating that many could be missing out on the chance to make their dreams of owning a home a reality.

When asked to guess what the definition was, 17% of first-time buyers thought this meant co-owning a property with your family, whilst a further 14% were under the impression that it meant sharing the responsibility of being a landlord on a property. 7% identified it as owning with a friend, and another 5% guessed it meant owning a few rooms in a house. Well over a tenth (14%) admitted they didn’t understand shared ownership at all.

Overall, nearly two-thirds (65%) either defined shared ownership incorrectly or were unable to do so at all, highlighting just how significant the knowledge gap is around this alternative route to home ownership.

Shared ownership as a potential pathway to home ownership

Despite such a high proportion being unable to describe shared ownership, once defined, half of respondents said they would consider or are already considering this as an option to buy a property.

Interestingly, 17% report having bought their property via shared ownership, whilst 19% of those yet to buy reveal they have considered utilising the scheme. In a similar vein, 11% say they are likely to buy using the scheme, which shines a light on the importance of explaining alternative buying schemes to aspiring homeowners.

Why shared ownership?

TML’s research also revealed the reasons behind why first-time buyers have considered using shared ownership, with over a quarter (26%) explaining it was because it allowed them to slowly build up to ownership of the property when it suits them. A similar number said they wouldn’t have been able to afford the property without shared ownership, therefore helping them reach their property ownership goals. A quarter (25%) also said that the scheme meant they could buy a property much quicker than first thought, whilst 24% said they had calculated that their monthly repayments worked out much cheaper in comparison to renting or a full mortgage.

On top of this, one in five of first-time buyers also revealed that shared ownership meant they were able to afford to live where they wanted, which will, no doubt, be especially appreciated by prospective buyers looking at cities such as London (25%), where the average property price sits at £523,376.

With this in mind, it’s clear that brokers have a prime opportunity to educate customers about shared ownership. This is especially relevant for potential buyers who are looking to get on the property ladder sooner rather than later, as well as those seeking a space in a sought-after location.

Brokers should make sure to explain to potential buyers that this scheme applies to new build homes, existing homes that are a part of a shared ownership resale scheme, or homes that meet specific needs such as a ground floor flat for those with long term disabilities. This opportunity is also only available to those with a household income of £80,000 a year or less, though this does go up to £90,000 a year for those looking in London. Homebuyers can fund the purchase of their share of the property (usually between 10% and 75%) either through a mortgage or outright using savings and pay rent to the landlord (i.e. housing association) for the share they own.

Providers of shared ownership schemes tend to include housing associations, local councils and homebuilders, and these will all often include shared ownership homes on their websites. For those customers just starting out, the Share to Buy website can be a useful resource to recommend, offering helpful guidance for those considering shared ownership.

Whilst the scheme exists primarily for first-time buyers, shared ownership can also be an option for those who used to own a home but cannot afford to buy one now, those forming a new household, existing shared owners, or those who own a home and want to move but cannot afford a new home that meets their needs with a standard/traditional mortgage. It’s worth recommending that customers consult the Government website which includes a quiz to check your eligibility to buy a shared ownership home.

Similarly, brokers should look into mortgage lender’s criteria too as some may have additional requirements for both properties and customers. For example, TML requires that properties purchased through using shared ownership mortgages have an EPC rating of between A-C, and that self-employed applicants have a minimum of 12 months trading.

It is also worth noting that houses purchased through shared ownership schemes will be leasehold rather than freehold properties.

Those considering shared ownership or wanting more information should consult a broker in order to fully understand the process, and ensure they are in the best position to take advantage of the scheme.