Is shared ownership the key to an affordable home?

The desire for home ownership is stronger than ever but high house prices, lack of supply of homes and increasing costs of services make it difficult for low income households to access a home of their own. Shared ownership can act as a bridge between renting and owning a  home .

The Resolution foundation report way back in 2014 considered the opportunity for the shared ownership sector to flourish as it considered the tenure the most affordable on an ongoing cost basis in the initial years. That was right. In the last decade the sector expanded and now over 200,000 households are living in shared ownership.  It is a tenure that can offer affordability, security, and asset accumulation.

Shared ownership is where buyers buy a share of a home and rent the balance from the landlord who is often a Housing association. The idea is that the buyer can buy a greater share of the home as time goes by increasing their share of ownership by a process called ‘staircasing’. If they buy more shares they pay less rent. So say a buyer initially buys 25% of the value of a home, 75% will be owned by the Housing association . The buyer will obtain a mortgage on the 25% share so they will only need to raise a deposit on this 25% share. So if a  flat is worth £300,000. They will need to contribute £75,000. They  will need a deposit of minimum 5% of this amount, so  £3,750.

In addition to the mortgage repayment on the £75,000 they will pay rent to the housing association for its 75% equity  of the home. Most housing associations charge 2.75% of their equity in rent so if in our example the housing association owns £225,000 the rent will be £6,187.00 per annum or £515.00 each month.

There are some additional costs. The home will always be leasehold and therefore be  subject to a service charge payable monthly, particularly if it is a flat. The buyer will also be responsible for repairs and maintenance of the home.

New homes are often purpose built for shared ownership and are therefore as new homes they are energy efficient, saving service costs and less likely to require repairs. Ground rent will no longer  be charged on a new home. This makes shared ownership of a new home an attractive option.

Shared ownership is increasing in popularity and while many housing associations offer shared ownership schemes  the issue is the same as with all housing ; There are not enough shared ownership homes to meet demand. What is needed is support for small housebuilders to source development opportunities for Housing associations shared ownership schemes and build for them quality and affordable shared ownership homes that are so much needed.

Denis Minns is author of Projects in Property: The business of residential property development. Bath Publishing.