THE SHARED OWNERSHIP MORTGAGE MARKET

JON LORD, MD AT AWARD-WINNING SHARED OWNERSHIP MORTGAGE BROKER METRO FINANCE, TALKS ABOUT AFFORDABILITY FOR FIRST TIME BUYERS IN THE CURRENT MORTGAGE MARKET

Who has £61,000?

Twenty or so years ago (maybe 30!) when I bought my first home is was relatively easy, despite what an older generation say about massively higher interest rates in those days. We didn’t really have the problem of house prices massively outstripping income (back then it was around five times income, now it’s closer to 10 times). And having personally worked in mortgages and affordable homes since 1996, this has caused me to worry! I’m concerned for the sake of my young son and how he’ll ever be able to afford his own home if prices continue to outstrip income. It’s odd that I worry, because I know there is a method to buy – multiple methods in fact.

But first, let me show you why I worry. (By the way, I’m not actually a worrier by nature!)

The average house price today is £296,000, which incidentally is £33,000 higher than October 2021! To buy this average house or flat with the average deposit [source: Barclays] of £61,000, you’d need an income of £53,000. Now! Where I come from these are not “average numbers” −

£61,000 deposit and income of £53,000 is out of reach to most. Most people don’t save £61,000 by the time they’re ready to buy. So, this average is derived from people who actually accessed this kind of money, and purchased successfully − not the average savings of the ones who didn’t buy.

The option for older generations like me was to buy a terraced house on the classic “£99 down and move in” – but this doesn’t work any more because most terraced houses have already breached the point of being affordable for the majority. And 100% mortgages are virtually non-existent.

So, while interest rates might be slightly higher right now, that’s not really the big issue. The fundamental “problem point” is that house prices are far higher than income levels of normal people. And incidentally, on the subject of higher interest, if you borrow less, you’re not as proportionately impacted by increased rates... in other words, it’s not as punishing if you can get on the ladder with a smaller mortgage.

Roll on shared ownership –now of course I am completely biased, I run a business that’s built on the foundations of shared ownership. However, the fact is that this product fixes all the problems of unaffordable homes.

1. It’s 40+ years old and a Government scheme – 40 years doing the same thing is credible (it hasn’t needed to change)

2. It makes house prices flexible by tailoring the value to what you can actually afford

3. The entry deposit is massively reduced, starting at 5% of the share

4. The mortgage amounts are much smaller than buying outright, thus proportionately less impacted by higher interest rates.

No other affordable home product comes close to doing all this. No other affordable home product can offer 66 different price options (shares 10% to 75%) for one property!

Shared ownership in action:

Average house price £296,000

• Income required for 25% share = £30,500

• Deposit required for 25% share = £3,700

Or, let’s say a £550,000 flat in London

• Income required for 25% share = £67,000

• Deposit required for 25% share = £6,875

Compared to buying outright, the income level required for average house prices (£296,000) has reduced by £22,500 and the deposit has reduced by a whopping £57,300 when using shared ownership metrofinance.co.uk

Now, of course, you don’t own the property outright like you would with a conventional purchase – but you could if you “staircased” at a later date, which is simply buying more shares over the years. Most shared ownership homes allow this option. There’s even an option to buy from 1% extra each year on the latest model of shared ownership.

You don’t have to buy more shares, you can just remain at your start share if that’s what you prefer.

Shared ownership is flexible and the solution to the huge problem of prices outstripping income.