Shared Ownership: The Biggest Millenial Con?
For first time buyers, there are 3 main avenues that you can use to get on to the ladder.
Help to Buy Scheme
Shared Ownership follows on from the 'Part Buy, Part Rent' schemes that were available in the early 2000's. Essentially, you can buy a share of the property by obtaining a mortgage, usually for a much smaller amount than a whole property and then 'staircase' your way to Full Ownership.
As you know each new property development built in London requires a percentage of 'affordable' housing. Either Council, Private Rental Scheme(PRS) or Shared Ownership. It is not a requirement for developers to provide Help to Buy. All developers have to apply directly to the Government. Most will only do this if they're struggling to get the sales they need from outright buyers. The good thing about this is there are usually more opportunities with Shared Ownership available.
What you'll find is that the developers of Shared Ownership properties decide the eligibility criteria, not the government. Therefore the fact you live/work in a different borough, don't have a child or aren't a nurse or teacher, depending on the developer, can send you straight to the bottom of the list or make you ineligible to apply.
Earnings for Shared Ownership are just as complicated too. Even if you have spoken to a mortgage broker, most Shared Ownership developers will have their own in-house brokers and will require you to go through a direct assessment with them to see if you could afford both rent and a mortgage. In my own situation when I started looking to buy, I was declined £150,000 for a 25% share in a Shared Ownership Property, but approved for a £150,000 mortgage outright directly through the banks.
Okay so in terms of eligibility this is typically what you'll come across. On a 2 bedroom Shared Ownership property the minimum household income is on average £50,000 depending on the area. A 1 bed is around £30,000.
Okay. So the full property value is £455,000. For comparison purposes, lets assume you put a 5% deposit down of £22,750 You would need to secure a mortgage for £432,250. Meaning your total income would have to be £96,055 a year (Done on the basis that some banks will lend 4.5x your earnings)
With the share at £113,750 for a 25%. If you put a 5% deposit of £5688, you would then only need to secure a mortgage of £108,062. Meaning your total income would need to be £24,013 a year. This is where the con comes in.
Whilst repayments for a mortgage of £108,062 would amount to about £570 a month. The rent going towards the management company would be £782, and your service charge £135. Therefore your outgoings are £1487, before you've accounted for council tax, utility bills and broadband.
On one hand, for a couple trying to purchase a property. This would be a great option, as you could supplement your income by renting out the second bedroom and you would both would need to be earning £27,000 to be eligible.
So how does this apply if you are looking for a 1 Bed?......
As shown above, the costs can be much more reasonable for a 1 bed and a single person would need to be earning £33,100 in order to be eligible. In this situation I would reccomend placing a higher percentage of deposit as the costs are reasonable, this will bring your mortgage down to around £320 per month. However the downside is that you are not able to supplement income by renting out the second bedroom.
If you are in a position where you are on a good wage, with little savings and need to be in a convenient area for work. Shared Ownership is a much better avenue then renting. The end result being that you would at least get some profit as opposed to none at all and the option to purchase more and more of your property
If you can compromise on the area slightly or have the budget to afford Full Ownership, You will save some of the money that will go towards paying both rent and mortgage. The downside of full ownership is that you may be sacrificing living in an area that may be closer to the city and more thriving. You may pay for that in commuting costs as you have to live further out of London.
Each scenario really does depend on your individual situation. Shared Ownership is not a con if you know what you're doing..