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Help to buy or shared ownership: how should you buy?

Help to buy or shared ownership: how should you buy?
Source: Getty Images


Are you a home buyer struggling to get your deposit together? Don’t worry – there’s help available. The two main options are shared ownership and the Help to Buy Scheme. Here’s a comparison to help you decide which might be best for you. 

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What is the Help to Buy Scheme?

Let’s start with the government-backed option, Help to Buy. The government gives you an equity loan, and you put this towards the cost of a new-build property. Here’s how it works:  

  • The government lends you up to 20% of purchase price (or 40% if you’re in London).
  • You only need a 5% deposit rather than the traditional 10-15%. 

There are a few upsides to using Help to Buy – here’s a summary:

  • It might be easier to get a mortgage if you’re only paying a 5% deposit. 
  • You don’t need to save up so much money to buy a house. 
  • If you repay the loan within five years, you don’t pay interest.
  • Even if your house sale falls through, Help to Buy can cover another property. 

Sounds good, yes? It can be, but here are some things you’ll also need to bear in mind: 

  • It’s only available on new-build houses.
  • Help to Buy ends in 2023, so it’s only an option if you’re buying a new house soon. 
  • From April 2021, it’s only available to first-time buyers.
  • It’s a loan, remember, so you need to pay it back. And if you don’t repay the loan within five years, you’ll pay interest – which adds up.

Not sure if Help to Buy is for you? Let’s take a look at shared ownership before comparing the two. 

What is shared ownership?

Shared ownership lets you buy a share in a new-build property. In other words, you don’t own the whole house – at least not right away. Instead, you own a ‘share’. So, if you buy a 25% share in the property, you own 5% of the house, and so on. 

Does this sound a little complicated? Don’t worry, it’s actually pretty simple. Here’s how the typical shared ownership works in practice:

  • You purchase a share in a new-build house.
  • You get a mortgage on the share you own (say, 25%) and pay rent on the remaining portion. 
  • It’s possible to increase your share size over time. You can eventually own 100% of the property. 

Shared ownership has some plus points:

  • You only need a mortgage for the share you’ve purchased, so it’s cheaper than Help to Buy initially.
  • The deposit is small – you’re only paying a 5-10% deposit on the share price, not the whole property value.
  • If you decide to move, you can sell your share at any point. 
  • In many cases, you won’t pay any Stamp Duty until you own at least 80% of the house.  

All that said, there are some drawbacks:

  • Although you can sell your share whenever you want, you need to give the housing association the chance to buy it from you. This can be a little restrictive if you’re trying to sell quickly.
  • You can only buy houses built specifically for the shared ownership scheme. So, there’s less flexibility in which property you can buy.
  • It can sometimes be harder to find a mortgage lender willing to offer a shared ownership mortgage.
  • There’s no guarantee how much it’ll cost to buy additional shares down the line, so it could work out more expensive long term.

Help to Buy or shared ownership: which is right for me?

Okay, so that’s what’s meant by Help to Buy and shared ownership. But how do you choose between the two? Here are things to bear in mind:

  • It’s cheaper to get on the housing ladder with shared ownership. Even if you can’t afford a large deposit, you can buy a small share and gradually ‘staircase’ your way up to full ownership. 
  • It’s impossible to predict how much the extra shares will cost, since it depends on the current property value. So you’re giving up some certainty for affordability.
  • Many people prefer the certainty of Help to Buy. There’s still no need for a big deposit, and if you can pay the mortgage off in five years, you won’t pay interest.
  • Help to Buy gives you full control over your home. You can sell on the open market without having to offer it to the housing association first.

Takeaway

Help to Buy or shared ownership? It all comes down to personal preference. What’s important is that you choose the option you can afford.

Missing mortgage payments can seriously damage your credit score, so think carefully about what you can afford to pay out each month.

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