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Shared Ownership or Help to Buy?

A paper house next to a sold sign.

The typical deposit needed for a first-time buyer in July 2019 was £30,945 – an increase of nearly 20% on the previous year – according to data from Experian’s Credit Barometer.  

Despite the cost of stepping onto the property ladder steadily increasing, the number of first-time buyers looking to purchase a home has remained strong. 

With this in mind, government initiatives such as Shared Ownership and Help to Buy Equity Loan aim to make home ownership viable for those without access to a large pot of cash. 

Shared Ownership or Help to Buy Equity Loan: which one is right for you?

Below, we have listed the key differences between the two schemes in order to help you decide which route is right for you. 

THE SCHEME

Shared Ownership: Shared Ownership is a part-buy-part-rent scheme which lets you buy a share of between 25% and 75% of a new build property, with a deposit as little as 5% of the share you are purchasing. You will have a mortgage and also pay a reduced rent on the remaining share to a housing association.

Help to Buy: Help to Buy enables purchasers to buy a new build property with the help of a loan, also known as shared equity. The government lends up to 20% of the home (40% in London), leaving the purchaser to raise a 5% deposit and a 75% mortgage to make up the rest.

ELIGIBILITY 

Shared Ownership: Shared Ownership is available for first-time buyers, for those who used to own a home but can’t afford to buy one now and existing shared ownership customers looking to move. You need a household income of £80,000 or less or £90,000 or less if you live in London. 

Help to Buy: The Help to Buy equity loan is available to first-time buyers, those who have previously sold a home and those who will have sold their current property before or at the point of completion on their home. Unlike Shared Ownership, there is no maximum income cap for this scheme. 

DEPOSIT

Shared Ownership: A deposit of at least 5% of the share you are buying (not the full value of the property) is needed to purchase a Shared Ownership property. For example, if a property costs £250,000 and you purchase a 25% share (£62,500), you would need a deposit of £3125. 

Help to Buy: Help to Buy is slightly different to Shared Ownership. You need a deposit of at least 5% of the full value of the property. For example, a 5% deposit of a home costing £250,000 is £12,500. Don’t worry! The equity loan goes towards your deposit and may be taken into account when you need to take a mortgage out. 

MORTGAGE OPTIONS

Shared Ownership: You will be required to pay a mortgage on the share you own and rent on the remainder, along with any service charges and ground rent. Later on you can buy bigger shares of your home which will bring the rent down. This is known as staircasing and is a great way to eventually own 100% of your home if you wish to do so. Although your monthly mortgage repayments will increase, your rent will decrease. 

It is worth noting many lenders (like us!) do offer specific Shared Ownership mortgage products.

Help to Buy: The equity loan is interest-free for five years, during this time you are only required to pay your mortgage and a £1 monthly management fee. After the initial interest-free period, you are required to pay an annual fee of 1.75% of the outstanding loan. This will increase along with inflation year-on-year. 

Once again, many lenders offer specific Help to Buy specific mortgage products, including remortgage.

SELLING

Shared Ownership: You are able to sell your share at any time once an independent valuation to determine the value of the property has been completed. Your housing association will likely have the right to ‘buy back’ the property before it is marketed to anyone else. This is called “right of first refusal” and is usual over an eight week period. If they do not find a buyer, you can go ahead and sell your home privately or through an estate agent of your choice. 

Help to Buy: When you sell your property, you will be required to pay a percentage of either the current market value or the agreed sale price of your home. For example, if the government assisted you with a 20% contribution, your repayment will be 20% of the total market value. 

Remember: if the value of your property has increased, so does the amount you need to pay back. However, if the value of the home falls, then then amount you owe would also decrease. 

If you are looking for a Shared Ownership or Help to Buy mortgage, please contact us and arrange an appointment. We provide a tailored and individual service, and we are available for Saturday appointments in-branch, by telephone or via video call.

If you find mortgage jargon confusing then you’re not alone. Visit our full mortgage glossary for a complete breakdown of the terms you need to know

YOUR MORTGAGE IS SECURED ON YOUR HOME. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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