"With increasing interest rates and tightening mortgage affordability, has it become the smart way to buy?"
Shared ownership has often been regarded as a 'lesser' way of buying your own home, but there is no denying that it has enabled many thousands of buyers over the years. So, with increasing interest rates and tightening mortgage affordability, has it become the smart way to buy?
Consider a recent case – a young couple with one child, who are currently renting a two-bed flat for £1,250 pm. They have another child on the way, £70,000 income, a £15,000 deposit, little debt but childcare costs.
Research has shown that it is possible to buy the cheapest house in the area, as opposed to a flat, for around £300,000. However, the couple would have restricted affordability at 95% LTV, with total monthly mortgage cost likely to be around £1,685 per month over a 30-year term.
For this couple there was a shared ownership option to buy a house valued at £370,000, purchasing a 40% share for £148,000. With a deposit of £15,000, this would mean a £133,000 mortgage, which would cost around £765 per month. Of course, there is rent to consider on top of this for the remaining part of the property they are not buying, which is valued at £222,000. However, this rent is currently charged at 2.75%, effectively on an interest-only basis, so would work out at approximately £509 per month. This means the couple’s total monthly expenditure to live in the house would be £1,274. This is just about the same as they are currently paying in rent for a flat, and they will be living in a nicer house in a better area.
So, opting for the house at an affordable monthly cost, with the option to buy further shares in the future, seems like a very sensible idea. Especially when you consider that interest rates may be lower when they come to increase their share of the property.
With the high cost of renting, it’s unlikely that they would ever be able to save enough deposit to buy the same sort of property outright, so shared ownership makes a lot of sense.
Yes, there are problems with resale on shared ownership properties and 'staircasing' is never easy, but if they were in a position to remortgage to buy the whole property, then the Housing Association problems would disappear for any future sale.
So, shared ownership is something brokers should always consider for this sort of client, and a good affordability-first research platform like MBT can make it easier to compare all of the different options quickly and effectively.
