The UK is currently in the midst of a housing crisis. According to a recent BBC News report, for everyone to have a decent home to live in another one million homes have to be built.
In September 2019, the National Housing Federation said that – as a result of the housing crisis – an estimated 8.4 million people in England were living in an either unaffordable, insecure or unsuitable home.
Although the government for years has been pledging to build more homes, the problem is not going away.
What is Shared Ownership?
With Shared Ownership, you buy between 25% and 75% of the value of the property. You pay a mortgage based on the share of the property that you own and pay subsidised to the housing association which owns the rest of the property.
This means that you may be able to pay a smaller deposit and have a smaller mortgage than you would have had otherwise. This is because you pay a 5% deposit on the share of the property that you are buying. Often, people carry on buying shares until they own all of the property.
Is shared ownership or help to buy better? Shared Ownership is best suited to those looking to buy a home but cannot afford one at the moment. You are ineligible if your household income is greater than £80,000 a year.
What is Help to Buy?
With the Help to Buy Equity Loan scheme, the government lends you up to 20% of the cost of your property (40% if you are in London).
You pay a deposit of 5% or more and arrange a mortgage of 75%. To be eligible, you have to be able to afford a mortgage and have access to a 5% deposit.
You are not charged interested on the 20% loan for the first five years of owning your home. However, from your sixth year you have to start paying a monthly interest fee of 1.75% which can raise further dependent on the Regional Price Index (RPI).
How the Economic Crisis is Damaging for First Time Buyers
Whether you are buying commercial property or residential property, the housing crisis has been particularly damaging for young people and first-time buyers. In a recent poll of more than 2,000 people that was conducted by the Affordable Housing Commission, 13% of adults said that their mental health had been affected by their housing situation.
Such concerns are often exacerbated by existing economic inequalities. In London, for instance, nearly 20% of homes are currently rented out by people not based in the UK.
Shared Ownership vs. Help To Buy: What is Best For You?
- For those who may not be able to afford a 5% deposit, Shared Ownership may be more suitable because the initial deposit can be as low as 1.25% of the property’s value.
- For those who want to own their entire home, however, Help to Buy may be more suitable.
At the moment, the Help to buy equity loan scheme is due to end in 2023, meaning that – for many – Shared Ownership could become the main route to affordable home ownership. Moreover, from 2021 Help to Buy will only be available to first-time properties.