Help to Buy or Shared Ownership? Compare Schemes with Fraser Bond

Help to Buy vs Shared Ownership: A Comprehensive Comparison

For first-time buyers and those with limited budgets, the UK government offers two key schemes to help make homeownership more affordable: Help to Buy and Shared Ownership. Both options provide financial assistance, but they operate differently and are suited to different circumstances. Understanding the pros and cons of each will help you determine which scheme best fits your needs. Below is a detailed comparison of Help to Buy and Shared Ownership.

What Is Help to Buy?

The Help to Buy scheme is designed to help first-time buyers purchase a new-build property with a government-backed equity loan. The main feature of this scheme is that it allows buyers to secure a property with just a 5% deposit and provides a loan of up to 20% of the property’s value (or up to 40% in London), which is interest-free for the first 5 years.

Key Features of Help to Buy

• Deposit: Minimum of 5% of the property’s value.
• Equity Loan: The government lends up to 20% (40% in London) of the property’s price.
• Interest-Free Loan Period: The loan is interest-free for the first 5 years, with interest applied from year 6 onwards (1.75% initially, rising with inflation).
• Property Type: Only available on new-build homes.
• Price Cap: Maximum property prices are capped based on the region, ranging from £186,100 in the North East to £600,000 in London.
• Loan Repayment: The loan can be repaid at any time, but it must be repaid when the home is sold or when the mortgage term ends.

What Is Shared Ownership?

Shared Ownership allows buyers to purchase a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which is owned by a housing association. Buyers can gradually increase their ownership by "staircasing" (buying more shares) over time, up to 100%.

Key Features of Shared Ownership

• Ownership Share: Buyers purchase between 25% and 75% of the property’s value.
• Rent: Rent is paid on the remaining share owned by the housing association.
• Deposit: Typically based on the share being purchased, so a lower deposit is required (usually 5-10% of the share's value).
• Staircasing: Buyers can purchase additional shares in the property over time, eventually owning 100%.
• Property Type: Available for both new-build and resale properties.
• Eligibility: Shared Ownership is available to first-time buyers or those who used to own a home but cannot afford to buy one now. The combined household income must be below £80,000 (£90,000 in London).

Help to Buy vs Shared Ownership: A Side-by-Side Comparison

Pros and Cons of Help to Buy

Pros

• Low Deposit: Only 5% deposit required, making it easier for first-time buyers to enter the property market.
• Interest-Free Loan: The government loan is interest-free for the first 5 years.
• Full Ownership: Buyers own 100% of the property from the start, unlike Shared Ownership.
• No Rent: No rent payments are required, only mortgage payments and loan interest after 5 years.

Cons

• New-Build Only: Help to Buy is limited to new-build homes, which may restrict options and can sometimes come at a premium price.
• Price Caps: The property must be below the regional price cap, which limits your options, especially in areas with high property values.
• Loan Repayment: The government loan must be repaid when the property is sold, and it’s based on the percentage of the property’s value at the time of sale, meaning you might pay more if the property has increased in value.

Pros and Cons of Shared Ownership

Pros

• Lower Initial Costs: Since you’re only buying a portion of the property, your deposit and mortgage costs are lower.
• Option to Staircase: You can gradually increase your ownership over time, up to 100%, allowing flexibility.
• Resale Properties: Shared Ownership is available for both new-build and resale properties, offering more choice.
• More Accessible: Ideal for buyers who might struggle to afford a full property purchase but can manage part-ownership.

Cons

• Rent Payments: You’ll still need to pay rent on the share you don’t own, which can be expensive over time.
• Service Charges: Shared Ownership properties often come with service charges, particularly for flats or properties in developments.
• Staircasing Costs: Buying additional shares (staircasing) comes with costs such as legal fees and property valuation fees each time you increase your ownership.
• Full Ownership May Be Costly: While staircasing allows full ownership, it can take time and significant financial resources to buy the remaining shares.

Which Scheme Is Right for You?

Choosing between Help to Buy and Shared Ownership depends on your personal circumstances and financial goals. Here are a few key factors to consider:

• Budget: If you can afford the 5% deposit for Help to Buy, it may be a better option for full ownership upfront, but if affordability is an issue, Shared Ownership’s lower initial costs might be more suitable.
• Ownership Preference: If you prefer to own 100% of your home immediately, Help to Buy offers full ownership, whereas Shared Ownership provides partial ownership with the opportunity to increase it over time.
• Ongoing Costs: Help to Buy has no rent costs but involves a loan repayment in the future. Shared Ownership requires monthly rent and potentially high service charges, but offers lower initial mortgage costs.
• Property Choice: If you prefer more flexibility in choosing between new-build and resale properties, Shared Ownership may be the better option. Help to Buy is restricted to new-builds.

Contact Fraser Bond to learn more about how we can assist you in navigating both schemes and finding the perfect property to fit your needs in London or elsewhere in the UK. Our property experts can provide tailored advice to help you make an informed decision.