Given the same initial deposit and the same property, the monthly costs for Shared Ownership are substantially cheaper than full ownership. The costs for 50% Shared Ownership are in line with Help to Buy, and 25% Shared Ownership is cheaper still (see below).

The costs for 50% Shared Ownership remain aligned to Help to Buy for the first decade of ownership. This means that while the Help to Buy equity loan remains, buyers are likely to favour it over Shared Ownership as it gives them a higher proportion of their home’s equity. However, we expect that Shared Ownership will service the gap left behind when the Help to Buy equity loan scheme ends in 2023.

However, as the rent portion of Shared Ownership costs rises at a premium to inflation, monthly costs will rise faster than for full ownership.

This ultimately leads to Shared Ownership becoming more expensive than full home ownership by the end of the mortgage term.

This point could come earlier in some parts of the country. While rental growth at a national level is roughly in line with RPI, this hides a great deal of regional variation. In many parts of England, private rents have shown little growth over the last decade. For example, rental growth in the North East was just 6.4 % between 2008 and 2018 according to the ONS. RPI over that period was 31.1%. Applying that inflation plus a premium to Shared Ownership rents results in rental growth far in excess of the market.

It’s possible that households will use this initial period of lower housing costs to save up and purchase a greater share in their home. However, since households living in Shared Ownership tend to have lower incomes, their capacity to save up may be limited. To date, evidence from Shared Ownership portfolios suggests staircasing is relatively rare (see Investing in the future).

The pattern of housing costs is largely the same across England. The exception is London, where the higher equity loan allowance brings the initial cost of Help to Buy below that of 25% Shared Ownership. Help to Buy remains the cheapest option in London for most of the 25-year mortgage term. Just over 5,000 households took up a Help to Buy loan in London in the year to September 2018.

One advantage of Shared Ownership is that it enables households to access home ownership with a much lower deposit: 5% of the share, which could be as low as 1.25% of the full property value. Help to Buy, by contrast, requires a minimum 5% of the full value as deposit.

The lower deposit requirement for Shared Ownership significantly reduces the barriers to home ownership for households without existing savings, and the lower mortgage borrowing requirements and discounted rent open it up to households on lower incomes.

Profiling the buyers

Despite similarities in entry and ongoing costs, there are significant differences in the types of households taking up Shared Ownership and Help to Buy. Shared Ownership is more popular with those on lower incomes. The scheme is only available to households with incomes below £80,000 (£90,000 in London), and buyers must demonstrate they couldn’t afford to buy a home without support. By contrast, Help to Buy users have a wider variety of buyer incomes, as the scheme has no income restrictions.

More than 10% of those using Help to Buy are currently excluded from Shared Ownership simply by having incomes above the cap.

More than half of all Shared Ownership sales in 2016/17 were to single person households, a far higher proportion than for Help to Buy. However, the profile of Heylo’s buyers is weighted more towards families, demonstrating how Shared Ownership can appeal to different demographics depending on how it is marketed.

There are substantial parts of the country where take-up of Shared Ownership and Help to Buy don’t overlap. Shared Ownership is more prevalent in the South, Midlands, and London, with limited take-up in the North or the outer parts of the East of England. Help to Buy take-up is much higher in the North, but less prevalent in London and south of the capital. However, take-up in London is increasing as more buyers take advantage of the more generous equity loan there.

After April 2021, each region bar London will be subject to a new, lower Help to Buy value cap. In some local authorities average Help to Buy property values already exceed these caps, so housebuilders will need to build cheaper homes if they want to continue using the scheme. Where this isn’t possible, we could see more of these homes coming to market as Shared Ownership.

Death (of HtB) and taxes

Until recently, Shared Ownership buyers had a substantial disadvantage relative to Help to Buy users: Shared Ownership buyers were excluded from first time buyers’ stamp duty relief. The 2018 Autumn Budget brought Shared Ownership into line with other first time buyers. This should help bolster Shared Ownership demand.

Help to Buy will become more restricted from 2021, cutting out home movers, and applying regional house price caps. These buyers excluded from HtB are likely to find themselves ineligible for Shared Ownership, as they are likely to be more affluent and therefore able to buy a home without support.

However, should Help to Buy come to an end in 2023, as announced in the 2018 Budget, Shared Ownership may be the only remaining avenue to low cost home ownership.

From its inception, Shared Ownership’s goal has been to help struggling first time buyers into the market. As Help to Buy winds down, and following the Stamp Duty equalising, it may see greater attention from buyers and investors alike.

Alternatives to Shared Ownership

While Shared Ownership is the most obvious replacement for the Help to Buy equity loan when it ends in 2023, there are other candidates. All these options offer a hybrid between buying and renting, to varying degrees.

Several proptech firms are beginning to offer alternative routes to home ownership. Firms such as StrideUp are broadly similar to Shared Ownership, offering buyers the chance to buy a share of a new or existing home and pay a fee on the remaining equity; Heylo offers a corresponding product called Your Home. Firms such as Proportunity offer a second charge equity loan to effectively boost prospective buyers’ deposits.

Rentplus is an institutionally funded scheme offering discounted rents to affordable housing tenants, with the chance to buy a property at a discount at five-year intervals.

Unmortgage proposes a hybrid product, where the resident puts down a 5% deposit and pays rent on the remainder, with the option of increasing their stake through overpayments.

These alternative schemes are currently much less mature than Shared Ownership, but it’s likely that they’ll form part of a range of options to aspiring homeowners once the equity loan scheme comes to a close.

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