We also looked at the differences regionally. In London, Shared Ownership amongst first-time buyers grew to 11%, but it was still dwarfed by the 54% who chose Help to Buy.
Regionally, it’s no surprise that more schemes are used in areas with more expensive properties. As such, Shared Ownership was most popular in East of England (13%) South East (13%) and South West (12%). Comparatively, the areas where Help to Buy was most popular were London (53%) Wales, (52%) and North East (47%).
It's possible that potential first-time buyers perceive Shared Ownership as a more accessible first step onto the ladder, but Help to Buy offers new properties and could appear to be a simpler form of ownership.
Or perhaps the confusion and limitations of Shared Ownership have stopped potential first-time buyers from jumping on the ladder?
Help to Buy Equity Loan vs Shared Ownership
The Help to Buy Equity Loan is a government scheme that offers a 20% government loan (40% in London), interest-free for five years, to support first-time buyers choosing a new build home.
Shared Ownership is the opportunity to buy a portion of a property and continue paying (reduced) rent on the remainder. This can be on a new build, or bought second hand from someone else in the scheme.
Pros and Cons
H2B: Only requires a 5% deposit which will then be topped up with a 20% equity loan. However, because the property must be a new build, the price will likely be higher. The average price paid for a H2B property in the UK is £307,000, so a 5% deposit would be £15,350.
SO: The deposit is based on the portion being bought. This means a 5% or 10% deposit could be much more affordable.
H2B: A mortgage and a £1 per month account fee. Buyers do not start paying interest on the equity loan until five years have passed.
SO: Buyers pay a mortgage and then a reduced rent on the remaining part of the property.
Both schemes can include ground rents and service charges.
H2B: Buyer owns the whole property. The government has equity in the property but has no say in what the buyer does in their home.
SO: There are limitations on significant redecorating. Permission may be required for pets and can be rejected.
H2B: A valuation is needed to assess how much is owed to repay the equity loan – as the buyer has to pay back 20% of the current market value, they may end up paying back more than they borrowed.
SO: A valuation and new EPC is needed to sell the property. It should be sold through the housing provider (e.g housing association). It is sold on the percentage owned by the seller (20% share) but on occasion can be sold at 100% ownership. If the housing provider can’t sell it, it can be sold through an estate agent for no less than the valuation price.
H2B: In giving the government an investment in the property, if the value goes down, owners may find themselves with low or negative equity after repaying the loan. Adding the cost of moving to this, owners may find they don’t have enough for a deposit for their next property.
SO: Even if the property increases in value, owning a smaller share means a smaller increase. Owners may have ‘staircased’ and bought more of the property over the years but will have paid for valuations and conveyancing every time they've increased their share. They may also find it harder to sell it on if they’ve staircased to a high percentage of the property.
It’s not particularly surprising that Shared Ownership is less appealing – on the surface it can seem incredibly complicated. Owners still have to pay rent, along with service charges, ground rent and other bills on top of their mortgage.
They have to sell through the housing provider, and often staircasing to a bigger percentage can limit the number of potential buyers (after all, if they could afford 80% of a SO property, they could probably afford a regular purchase).
It also looks a lot like renting – there are still limitations on what can be done with the home. It doesn’t feel like a complete move to home ownership, more like a halfway point.
However, with Help to Buy predicted to end in 2021, and many potential first-time buyers struggling to earn enough to satisfy mortgage lenders (even with the equity loan), highlighting the advantages of SO as a chance to build a larger deposit might be a way forward for the scheme.
Why this matters
Here at Reallymoving, we are adding a first-time buyers section to our existing Market Intelligence Hub, to help support first-time buyers in making the right choice for them.
With the average deposit taking 10 years to save, and the average age of FTBs rising to 33, it’s important not only to know what your customers qualify for, but what’s the best option in your area.
By looking at regional breakdowns of cost, property size, schemes used and many more vectors, we are creating a hub that will be of use not only to potential first-time buyers, but industry professionals too. The current version includes a regional property price forecast, amongst other tools.
*Rob Houghton is chief executive of reallymoving.com