Since it was first introduced into the mortgage market in the 1980s, the Shared Ownership scheme has helped hundreds and thousands of first-time buyers (FTBs) take their first step onto the property ladder. Faced with rising house prices, escalating living costs and stagnant wages, shared ownership has offered those struggling to raise a large deposit a more affordable way of buying a home.
More recently, the challenges facing FTBs have been exacerbated by global factors such as the Covid pandemic, soaring energy prices and ongoing volatility in the financial markets. This has created an element of uncertainty among borrowers, many of whom have adopted a wait and see approach to purchasing a home by delaying any decision until the dust has finally settled and conditions stabilise.
While there is no denying the fact that higher borrowing costs and affordability constraints are placing increased pressure on the monthly budgets of many consumers, getting on the property ladder in the current economic climate is still a viable option for many FTBs and there remains ample opportunity to achieve this goal, particularly through the Shared Ownership scheme.
According to government figures, an estimated 80% of Shared Ownership purchases made in 2020-2021 were by FTBs, with over 72% of those made by people under the age of 40 and 39% under the age of 30. The fact these purchases were made during such a period of heightened uncertainty and market volatility due to the pandemic clearly demonstrates the benefit of the scheme in helping people buy their first home, regardless of market conditions.
It’s also worth remembering that the Shared Ownership scheme was in fact designed specifically to help FTBs overcome the affordability challenges they many face in the open market and achieves this by enabling them to take out a mortgage to purchase a share of a property owned by a housing association or local council, typically between 10% to 75%, and pay rent on the remaining share.
Given the fact that deposits are typically between 5% and 10% of the share purchased, there is also less of an initial outlay, which makes saving for a deposit more achievable and the purchase therefore, more affordable. Over time, when budget allows, the borrower’s share in the property can then be increased – a process known as staircasing – enabling the buyer to own a larger stake in the property.
As with all mortgage products, meeting the eligibility criteria, such as having a combined household income of less than £80,000 or £90,000 in London, will determine whether your client will qualify for a Shared Ownership mortgage. Lending criteria can vary widely, so it is always worth shopping around.
In many cases, smaller lenders that manually underwrite applications can offer more flexible product features specifically tailored to the individual needs of your client. For example, Loughborough Building Society offers LTVs of 95% on new builds and 80% on new build flats and will consider the most recent year’s financial figures, rather than the last two, for self-employed applicants.
Similarly, zero-contract hours and bank nurses only need a minimum of six months’ proof of income with no more than a two-week gap in earnings, while CIS contractors are treated as employed if they have worked a minimum of six months with the same firm. Salary/dividends or salary/net profit and gifted deposits can also be used for affordability purposes and probationary periods are ignored.
Although the aim of Shared Ownership is to primarily support FTBs, it’s also worth remembering that it is also available to anyone who meets the eligibility criteria, including second steppers and those upsizing or downsizing. Meaning that this ongoing scheme can provide an excellent opportunity for the right potential buyer to get onto, or take a step up, the property ladder.
Ashley Pearson is national BDM at The Loughborough for Intermediaries
