Buying a home in this economy, i.e. deep in a recession, post pandemic is a conversation that many are straying away from. Perhaps because it may appear to be something far too unfeasible for so many young people. While the baby boomers generation had probably benefited from affordable housing, this is a privilege that hasn’t been extended through to this generation of future buyers.
According to the Office of National Statistics, in 1990 the proportion of people with mortgages on income of over £50,000 was 2.5%, while in 2011 it had increased to a staggering 40%. In fact, in the UK, average house prices have increased by £70,000 since 2011, while the average salary has only increased by 10k. The inflation numbers just aren’t correlating and getting into the property ladder is becoming harder and harder. However, along the years, government schemes have been implemented to help you out. It’s important to do some research in order to establish exactly what will work out best for you.
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Glamour’s Grace Barnes, speaks on her experience buying her 1 bedroom flat through the government scheme of shared ownership.
‘I was living with my partner and we broke up, I was 36 at the time and I’d been doing flatshares in London for over 10 years. I couldn’t see myself going back into a flatshare again and I wanted to live in Zone 2 near friends and close ones. I could potentially just about afford rent but it just felt like real, throw-away money. I wanted to live on my own and that was the only way to do it, where I could also have some sort of future investment.
I wanted to live in the London Boroughs of Peckham or Hackney, where rent prices for a decent one bedroom flat could run you 1.5k per month. My best option was to just take the plunge and get into the property ladder. I did have some inheritance and wanted to do something with that, but I couldn’t just get a mortgage on my salary. At the time there were two prominent government schemes, help to buy and shared ownership and I was weighing up the two. It appeared to me that shared ownership was the most affordable option based on my salary. I was quite set on where I wanted to live, so although I was financially restricting myself by doing that, it wasn’t something I wanted to compromise on.
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I went to the shared ownership website and checked it everyday to see what would come up. Took me a few weeks to find something that I liked the look of. I went to view an older property, from someone selling it back into the scheme, but it wasn’t right for me. Then I saw a brand new build come up in Peckham, so I booked myself in for a viewing and signed up that day. You had to move really fast. There was quite a lot of pressure to sign-up. Not necessarily coming from the housing association but the apartments were in high demand.
In my case it did feel a bit like a lottery, as I had to put down my top 3 favourite choices of flats for purchase. So there was no guarantee that you’d get your top choice of flat. They use a scoring system where points are awarded based on first time buyers, local community, if you have children and key workers and your affordability and allocate accordingly. Soon after, I got a notification saying I got my second choice, so then I got the ball rolling. I paid all the fees and completed it in 6 weeks. I had to put down the deposit pretty quickly but overall, it was a smooth process.
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Deposits for shared ownership can be as little as 7k or maybe even less. For full transparency, I had inherited some money, so that meant I could drop a £50,000 deposit which reduced my overall repayments and meant I could afford to buy 50% worth of my flat. That is the biggest percentage you can/should get because if you were to buy any more than that, it makes the process of selling back into the scheme far more difficult, as it would no longer be an affordable investment. They use a calculator and work out how much your mortgage and rent would be. They do encourage you to buy as much as you can afford. Although if you buy less, the repayments are less.
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There is no major pressure to staircase your way to full ownership, i.e. buy a bigger percentage of your flat year on year. However, for me, this feels like glorified renting, and it’s very much a short term arrangement. As I see it, the only real value I have is to buy the whole thing, so I can have the flexibility to sell and rent as I please. I really wanted to do it as quickly as possible and I also wanted it to naturally fall in line with when I renew my mortgage so I don’t have to buy myself out of it (I’m currently on a 2-year fixed rate). Upon reflection, I should have spent more time investigating help to buy, as there are quite a lot of restrictions with shared ownership. However, as I’m two years in and I haven’t looked into selling it just yet, I’m happy with the decision that I made. If this is something you like the sound of, make sure you weigh the pros and cons for you, as this should be a very well thought out personal decision.’
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The facts you need to know:
What is shared ownership?
Shared Ownership gives 18+, first time buyers or those within the scheme itself, the opportunity to afford the purchase of a suitable home on the open market, when they wouldn’t be able to otherwise. The idea is that the buyer pays a mortgage on the share they own, and pays rent to a housing association on the remaining share, meaning the amount of money required for a deposit is usually a lot lower when compared to the amount that would be required when buying outright.
The buyer will then have the option to increase their share up to 100%, during their time in the property via a process known as ‘staircasing’. When you buy the rest of the share if the value of the property goes up or down, then you end up paying more or less. The scheme does favour key workers, first time buyers, families and the local community.
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Stamp duty (shared ownership makes the stamp duty minimal)
Reservation fee, mortgage valuation fee, mortgage arrangement fees, solicitors’ fees, removal costs and utility connection charges
Total: Approx 3-5k
Minimal stamp duty fees (if any)
Opportunity to get on the property ladder on a small deposit
Option to buy between a new or older build
Homes usually come with main utilities as you are essentially part tenant (e.g. fridge, freezer, cooker etc.)
You can re-decorate as long as you don’t change the structure of the home
Relatively easy process to staircase into full ownership
More legal fees when you re-broker your mortgage
Subletting the property is illegal
You are tied to either buying out the whole property or selling it back into the scheme
When staircasing, if the value of property goes up, then you will have to pay more for the rest of the share
Rent can go up every year
If selling back into the scheme, the housing association will have 8 weeks of full control on the sale (i.e. price etc) if doesn’t sell within 8 weeks than you can intervene and adjust the selling price
You run the same risks as having a full mortgage
Restricted to changes (can’t change the structure of the flat)
For more resources check the Shared Ownership website.