The Shared Ownership market is maturing at a rapid pace and according to many experts, it's quickly becoming the 'fourth' tenure in the UK housing market.
As more people struggle to access the property market, affordable home ownership schemes such as Shared Ownership provide accessibility and flexibility.
But what makes an affordable home product good? And why are more people taking advantage of Shared Ownership? To answer that, we need to consider two core issues impacting the market:
• Rising property values outstripping income levels
• Capital input required
In practical terms, these two issues can be summed up as two common problems that homebuyers face:
• I can't afford to buy in my area
• I can't pay my rent and still save for a deposit
These challenges have led to the rise of affordable ownership schemes. To see why more people are choosing these schemes, Platform Home Ownership and Metro Finance have partnered up to look at the ever-growing popularity of Shared Ownership, what it means for affordable housing and how Shared Ownership mortgages have changed in recent years.
Why are Homebuyers Moving to Shared Ownership?
We often hear the phrase 'affordable homes' but what does it mean? It doesn’t mean 'everyone will be able to afford every affordable home described this way'. It simply means the property is ‘more’ affordable than it would be on the open market.
Shared Ownership represents a unique affordable home product. It's incredibly flexible and can fit multiple individual circumstances or financial situations.
Consider this: Shared Ownership makes it possible for one property to have around 65 different prices! The share size is tailored to your affordability based on an initial purchase between 10% and 75%. Even then, you can rise to 100% later, should you lease allow it.
There's no doubt that Shared Ownership is now an established fixture on the housing landscape. But how does the tenure offer a different approach to homeownership than the traditional 'outright sale' route?
Using the UK average property price of £284,000, with Shared Ownership the price you can buy at can range from £28,400 through to £213,000 and anything in between - depending on what you can afford. In other words, total flexibility and the ability to adjust according to income affordability.
This is just one of the reasons why Shared Ownership has grown so much over the last 10 years. House prices have increased beyond reach for many people and Shared Ownership can effectively bring those prices back into reach - particularly in terms of deposit.
Why Choose Shared Ownership?
In 2021, Metro Finance saw a 55% growth in the number of Shared Ownership mortgage offers compared to 2020. Even compared to 2019 - pre-COVID - it still represents a 40% growth.
But… this only tackles the first barrier ‘I can’t afford to buy in my area’. What about the other barrier ‘I can’t save enough deposit and pay my rent’?
Shared Ownership once again is unique. Just as the Share sizes can adjust to meet your income affordability – so can the deposit requirement.
For example, your income might allow you to buy a 75% share but your deposit might only be enough for a 25% share. This would mean your deposit level is the deciding factor when determining the share size.
Using the average UK house price again, of £284,000, to purchase on the open market you would need a deposit of £14,200 minimum. In Shared Ownership, the 5% is calculated against the share size, so a 25% share would require a £3,550 deposit.
Whilst it doesn’t take away the deposit totally, it’s certainly far easier to save £3,550 than £14,200. The equivalent of saving £295 per month for a year rather than £1,183.
Below we've combined these two key benefits of Shared Ownership - lower income requirements and lower deposit requirements - into real, practical numbers.
Based on an average house price of £284,000, this brings to light why Shared Ownership keeps growing:
Open Market Purchase: A deposit of £14,200 and an income of £59,000.
25% Share: A deposit of £3,550 and an income of £26,000.
40% Share: A deposit of £5,680 and an income of £29,000.
60% Share: A deposit of £8,520 and an income of £35,000.
It's important to remember that Shared Ownership isn't also just for new-build properties - although that is the most common purpose.
Between 2019 and 2021, Leeds Building Society reported a rise in the purchase of Shared Ownership resales from 16% of buyers in 2019 to 25% in 2021. This means 25% of all Shared Ownership buyers purchase resale.
This same stat also demonstrates the increase in the total number of Shared Ownership units available in the market - as the increase in new-build properties over the years gradually turned into resale.
We've also seen an increase in the number of lenders involved in Shared Ownership. Nearly all of the high street lenders are involved, alongside plenty of building societies. These lenders provide a vast array of mortgage products and enough to satisfy many different walks of life.
