An expert guide to the Help to Buy and Shared Ownership schemes

You don’t need me to tell you that fewer and fewer young adults are becoming homeowners. At the age of 27, those born in the late 1980s had a homeownership rate of 25 percent, compared with 43 percent for those born ten years earlier. This is, in part, because house prices have risen to record levels and banks generally want a 10 percent deposit before they’ll dish out a mortgage. Given that the average home in London currently costs £648, 942, 10 percent is hardly a small whack. If you’re renting privately and handing over, on average, more than a third of your monthly income to a landlord, saving this much is a Herculean task. That’s where Help to Buy and Shared Ownership come in. 

So, they’re an attempt to help young people actually be able to buy?

That’s right. Help to Buy and Shared Ownership are solutions from different governments to the same problem: mainly attempting to boost younger people’s chances of getting a foot on a property ladder that, as they live and breathe, is being pulled up before their very eyes. However, as the crisis worsens, we know that older people need help too and there is no age limit on either scheme. Help to Buy is only available to first-time buyers but Shared Ownership is not.

Are they essentially the same thing?

No. Help to Buy and Shared Ownership operate differently. What they have in common, though, is that they require a lower deposit than a regular mortgage does. With Help to Buy, you only need to pay a 5 percent deposit of the property’s asking price. So, if the property costs £350,000, you pay £17,500 rather than 10 percent, which would be £35,000. With Shared Ownership you buy a share of your home which you pay a mortgage on – generally 5 percent or 10 percent – and rent the rest from the freeholder (usually a housing association).

Right, so tell me about Help to Buy

You might have heard of Help to Buy ISAs. That savings scheme closed to new accounts in November 2019. Today, when people talk about Help to Buy, they are referring to what’s known as the Equity Loan scheme. In effect, it’s money you borrow from the government to cover some of your mortgage. You put down your 5 percent deposit and then you can get up to 40 percent of the property covered by the equity loan (20 percent outside of London). It only works on eligible new-build homes, and in London those homes can be worth up to a maximum of £600,000.

What’s the catch?

Well, obviously, with this scheme you have to repay your mortgage and, eventually, the equity loan too. The loan is interest-free for five years. After that, you have to pay an additional fee of 1.75 percent of the loan’s value. This fee increases every year by the Consumer Prices Index (CPI) including owner-occupier housing costs (CPIH) measure of inflation, plus 2%. CPI, FYI, is the rate at which the prices of the goods and services we all buy – from bread to ready meals and cinema tickets – rise or fall. Also, the value of the loan is linked to the value of the property you’ve bought: if this rises over time, so will the amount of loan you have to pay back. The devil, as ever, is in the details.

And what about Shared Ownership?

With this one you part own and part rent a home. It’s a government-backed scheme operated by different providers (usually housing associations) which is meant to help people with small deposits and lower incomes buy a home. The minimum purchase share is 10 percent. Each month, you pay your mortgage on the bit of the property you own and pay rent on the rest.

Do you rent part of your home for ever, then?

The idea is that, over time, you do something known as ‘staircasing’, which means that you buy ever-larger shares of the property until, eventually, you own most of it. However, there are costs associated with doing this. The government has said it’s looking at reducing these but no detail has been announced yet.

What’s worth thinking about when deciding between the two schemes?

That old maxim ‘nothing worth doing is easy’ does apply to buying a home. But, if it’s something you want to do and you can’t afford to get a big deposit together, these schemes are meant to help and, at the very least, will get you out of private renting. However, it’s always worth looking at the small print (interest on the Help to Buy loan and rent-plus-staircasing costs for Shared Ownership) and getting to know the details. Beyond that, both of these schemes generally apply to new-build blocks but, in the case of Shared Ownership, also some older properties.

Is there anything else I need to be careful about?

A lot of existing new homes in blocks have been caught up in the building safety scandal that has unfurled in the wake of the Grenfell Tower fire, so if you do go ahead and buy a new-build, be really diligent in researching the development you’re buying in and ask questions about building materials. A good conveyancing solicitor is a must and will check all of these details for you too. When getting into homeownership, remember this: there is no such thing as a stupid question.

Eight tips for first-time buyers. 

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