Thinking about taking the government up on its new shared equity scheme for first-time buyers? Before you grab that property ladder rung, there are some scary sums to get your head around first.
Living and renting in London for the last 18+ years has made saving for a hefty house deposit rather unrealistic.
So when my husband and I realised we could actually get on the property ladder, with a little help through a shared ownership scheme, we jumped at the chance. Suddenly we found ourselves talking with solicitors, meeting mortgage advisers and signing paperwork agreeing to buy a flat – scary, and speedy, stuff!
Sharing the load
Traditional shared ownership means you buy part of the property, between 25% and 75% of the total value, and pay rent on the rest, often to a housing association – no more than 3%, usually around 2.7%, capped for the first few years.
The idea is that you increase your share (known as ‘staircasing’), with the eventual aim of owning the whole property. With most banks these days asking for a 25% deposit for a new-build flat, shared ownership – where lenders are willing to offer mortgages with a 5% or 10% deposit – can offer first-time buyers an affordable headstart.
This September sees another string added to the government’s affordable homes bow. FirstBuy is a shared equity scheme, which offers first-time buyers an interest-free loan for 20% of the value of the property to put towards a deposit. Add it to your own 5% and you’ve got that 25% deposit for a new-build from a private developer.
Still priced off the ladder?
We were told that “affordable” means your housing costs (mortgage, rent and any service charge) should come to no more than 40% of your income. For shared ownership, you need to have a combined income of no more than £60,000 per year to apply – meaning your housing costs won’t top £2,000 per month.
With the FirstBuy shared equity scheme, the combined income threshold is capped at £72,000, meaning your monthly housing outgoings could creep up to £2,400. According to research by the Evening Standard, FirstBuy could simply be too expensive for first-time buyers in London used to lower rents.
Where we’re moving to in North London, for example, the maximum average monthly rent for a two-bed flat is about £1,000, with the maximum Greater London average £1,500 a month.
Scary sums for a first-timer
Luckily we’ve found we’ll be paying nothing like those top-end figures. Firstly because we’re a long way off the maximum combined income, but also because you’re assessed for “affordability” as part of the application. The lower your income the less you will have to pay, because you’ll only be able to afford a lower share.
A final note of caution on shared ownership: don’t base your sums on the minimum share, as you’re likely to be offered more. Because most housing associations are charities, the Charity Commission requires them to ensure you are maximising your input into the scheme by taking the largest share you can afford to sustain.
Would you consider buying a property on a shared ownership basis? Does the government’s new shared equity scheme sound appealing to you?