Which? research reveals the true scale of how unaffordable shared ownership schemes are in Greater London.
Shared ownership schemes are designed to help first-time buyers take their first step onto the property ladder. However, new research from Which? has found that most young people cannot even afford the minimum share.
Shared ownership involves buying between 25% and 75% of a property and paying rent on the remainder, which is owned by the local housing association. The rent you pay can be up to 3% of the association’s share of the property’s value. For many people struggling to save up a large enough deposit to buy a home of their own, shared ownership offers a lifeline.
However, our research found that when you compared the average monthly costs (mortgage repayments, rent and service charge) with average salaries, the majority of studio or one-bedroom properties in and around London are still out of reach for many:
Minimum share of a studio or one-bedroom shared property within a 20-mile radius of central London is impossible for most people aged under 30
Under 30s, earning on average £27,900, will not meet the affordability test for three-quarters (76%) of the properties – they would need to earn £37,300 to afford repayments
Not one of the 28 properties located in Zone 1 was affordable for the average person under 30
Of the 77 properties we looked at in Zone 2 90% were unaffordable for under 30s
A recent report found that the number of shared ownership sales varies considerably across the UK, with London accounting for the highest proportion. For the studio and one-bedroom properties that we looked at you would need to be earning more than £37,300 a year for them to be affordable, while the average annual salary for under 30s is just less than £28,000, putting shared ownership out of reach for many. In fact, the average income of first-time shared ownership buyers in 2015-16 was £45,000 in London.
Anyone with a household income of less than £80,000 outside of London and £90,000 inside London is now able to buy a shared ownership home.
David Blake, Principal Mortgage Adviser, Which? Mortgage Advisers said:
“This research demonstrates the impact of rising house and rental costs in the capital. Buyers need to be realistic about what they can borrow, and I would suggest that they look at numerous properties as rents can vary considerably.
“That said, it’s not all doom and gloom as the mortgage market is very buoyant right now and lenders certainly have an appetite to lend to first-time buyers.”
Shared ownership can be a great way of getting onto the property ladder, but it’s not the ideal solution for everyone. For more information on the pros and cons, visit the Which? free online guide to shared ownership.
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Notes to editor
Research: We looked at 525 shared ownership properties within a 20-mile radius of central London in November 2016, of which 214 were studios or one-bedroom properties. The 525 properties are all of the shared ownership property listed on the Mayor of London backed site: https://www.sharetobuy.com/firststeps. Properties without mortgage or monthly rent details and those with a minimum listed share of 0% or 100% were omitted.
We found that the average minimum share of a studio or one-bedroom home costs £145,146. If you wanted to buy the minimum share of one of these properties using a 95% mortgage, the 5% deposit would cost £7,258. Data from First Steps, the shared ownership organisation for London.
Affordability gap: When you apply for a mortgage, your take home pay (after tax and national insurance) will need to be at least double the monthly outgoings on the property to meet affordability checks. For the above example, you would need to be earning more than £37,300 a year. Full details of studio and one-bedroom properties in the table below:
Report: Shared ownership: ugly sister or Cinderella? by the Council of Mortgage Lenders in October 2016. https://www.cml.org.uk/news/press-releases/shared-ownership-ugly-sister-or-cinderella/
If you’re interested in buying a shared ownership home, call Which? Mortgage Advisers on 0808 252 7987 for unbiased, expert mortgage advice