Renting vs. Shared Ownership: Bridging the Affordability Gap for Homeowners

The dream of owning a home is a significant milestone for many. However, in today’s housing market, the affordability gap between renting and homeownership has become more pronounced than ever.

In the 12 months to August 2023, private rental paid by tenants in England and Wales rose by 5.4% and 6.5% respectively with London experiencing the highest annual percentage change at 5.9%.

The Challenges of the Rental Market

Renting has long been a popular choice for those who value flexibility and want to avoid the responsibilities associated with homeownership. However, in recent years, the rental market has undergone significant changes, and many renters are facing multiple increases in rent prices.

The main concern with rental is its unpredictability and, depending on the rental agreement, tenants often have little control over these changes. This uncertainty can make it challenging for renters to plan for their future. Recent changes in landlord tax, income and mortgage rates have led many private landlords to exit the industry, decreasing the number of rental properties available nationwide.

When buying a home – how much do I need to save?

The first thing you need is a deposit.

  • 10% for standard mortgage products
  • 5% on some mortgage products but often means higher interest rates
  • 15% for wide availability of rates and lenders

The Land Registry data from July 2023 shows the average UK property price to be £289,824. This varies region to region but provides a good understanding of what savings are required to step onto the property ladder.

  • A minimum 5% deposit – £14,491
  • 10% deposit – £28,982
  • Ideal 15% deposit – £43,473

It is important to note that there are additional costs involved in buying a home – for example Searches and Stamp Study Land Tax.

Stuck on the jargon? Check out our blog which simplifies all the wording involved in buying a home.

Shared Ownership: The Facts and Figures

Shared ownership provides an alternative to renting and full homeownership. This government scheme allows individuals to purchase a share of a property while paying rent on the remaining portion. Here’s how it works:

Initial Investment: A percentage of the property is purchased, rather than the full amount, the usual minimum is 10%, and the maximum is 75%. For this, a deposit is still required on this portion, along with a mortgage agreement for the value of the percentage being purchased.

Monthly Costs: In addition to the monthly mortgage payments on the share they own, participants pay rent on the remaining share, typically to a housing association. This rent is often set at below-market rates.

Gradual Ownership: Over time, shared ownership participants can increase their share in the property through a process known as “staircasing.” This means that as their financial situation improves, they can gradually buy more of the property until they eventually own it outright. Terms of purchase will be laid out in the lease, more details on this can be found on the .gov website, here.

For full details, please click here.

Security in Living Arrangements

One of the advantages of shared ownership is the sense of security it provides. Unlike renting, where leases can be terminated with little notice, shared ownership participants have a long-term stake in their home. This stability can allow individuals and families to put down roots, build a sense of community, and plan for their future with confidence.

Shared ownership often includes maintenance and repair responsibilities shared with the housing association. This means that homeowners won’t face unexpected repair costs that can be a burden for traditional homeowners.

How PLS Solicitors Can Help with Your Shared Ownership Purchase

As the Best Law Firm for Conveyancing 2023 – First Time Buyer Reader Awards, our team are experts in guiding first-time buyers through the intricacies of buying their first home. 10% of all our transactions involve Shared Ownership. Our extensive collaborations with numerous housing associations position us to advise you quickly, with the knowledge and experience to navigate any complexities with ease.

Contact us today to talk about your shared ownership purchase.