Affordability remains the key downside for people wanting to buy a home, which is why government schemes such as Help to Buy have proved popular.
Help to Buy is due to close in 2023 and there are private firms looking to fill the void but an alternative way to get a foot on the housing ladder is shared ownership. This year we have seen an increase in enquiries and sales of this part buy/part rent tenure and I expect this to continue.
Most shared ownership homes are built and managed by housing associations and although it is still only a small part of the housing market, it has potential to grow. Housing associations are an important part of the new build sector and are now responsible for building a quarter of England’s new homes, including almost all new social and affordable housing.
Rise of shared ownership
Shared ownership was described as the ‘fourth tenure’ in a House of Commons briefing paper published in November 2020. It stated there are around 157,000 households in England living in shared ownership accommodation, which is less than 1% of all households – but the ‘fourth tenure’ has been increasing in recent years.
In 2015/16, there were 4,080 units built but three years later this more than quadrupled to 17,020 in 2018/19 accounting for 34% of new affordable housing supply, up from 23% in 2015/16.
Going forward I believe shared ownership will become increasingly popular as it is a more affordable way for people to get a foot onto the housing ladder.
Affordability
Shared ownership used to have a reputation as being for those on low incomes but this is not the case anymore. There are many professional people and families taking this route into home ownership as the cost of housing, especially in the south of England, is so high.
The latest ONS data shows the average UK house price was £256,000 in July 2021, so a 10% deposit would be £25,600. In order to secure a better mortgage rate, a 25% deposit would require £64,000, which is beyond the reach of most first-time buyers. With shared ownership, buyers can purchase a property with just a 5% deposit so in the above case that would be £12,800.
Building more shared ownership homes
More shared ownership properties are going to be built as part of the government’s Affordable Homes Programme for 2021-26. This will see the new build sector receive an injection of £8.6bn to deliver around 119,000 affordable homes, including 57,000 for home ownership with the majority of these being shared ownership.
Shared ownership is a niche area of lending but more lenders are looking at it, which will not only be good for the sector, it will become necessary as this tenure expands.
Because it is niche, shared ownership requires specialist advice to ensure buyers understand what they are doing and what their options are such as staircasing. Not everyone will be eligible for shared ownership so at Just Mortgages we find that out at an early stage via our initial qualification process.
As new build mortgage brokers we work closely with lots of housing associations, as well as developers, and really understand the nuances involved. This means we can manage the expectations of our clients and keep them informed of progress every step of the way.
John Doughty is financial services director at Just Mortgages’ New Build Division
