Help to Buy Vs Shared Ownership: Which is Best for You?

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A home is one of the most significant investments that most people make. Although everyone needs a home at some point, not everyone can afford it. There are different avenues you can use to help you purchase property. Some people turn to the government to help them buy property.

If you choose to get assistance from the government, there are two options: help to buy and Shared Ownership. Both are excellent choices, but you should take time to understand which one is right for you, which can be confusing.

This guide should help you debunk both schemes and choose which is best for you.

Help to Buy Benefits

The first option is Help to Buy, which requires you to save up a deposit of 5% for the property. You then get a mortgage of 75% and a government loan for the remaining 20%.

This allows potential home buyers to purchase property using a smaller deposit cost. The government loan is interest-free for five years. You can choose to pay off the loan when you move or when your mortgage is paid off, whichever comes first.

Some of the benefits of this scheme include the following:

Financial support for your deposit

Buying a brand-new home or even a self-build project comes with a hefty price tag, particularly in the modern market. The Help to Buy scheme works to ease the financial blow of such a substantial investment by enabling successful applicants to get a boost in purchasing the property. this level of support can make a significant difference to potential buyers with their sights set on a property that may be just outside their budget limit.

Increased property eligibility

Whether you’re looking for a newly built property or have dreams of building your home from scratch, the Help to Buy program covers all angles.

The support available through the incentive applies to self-built and new homes with a value of up to €500,000. The high ceiling means that many properties are eligible, giving buyers a larger pool of options.

Simpler Eligibility Criteria

Most programs, including mortgages, have a robust list of qualifications requirements that lock out many applicants and potential homebuyers. The rules and regulations for applying for the scheme are clear and simple. The scheme is exclusively for those buying their first home and focuses on helping newcomers to the property market.

Another condition is that the occupants must occupy the new property within two years of its purchase and must retain their primary residence for a minimum of five years. This requirement ensures that the scheme benefits genuine home buyers.

Shared Ownership

The alternative to Help to Buy is Shared Ownership. In this scheme, you buy a portion of a property (about 25% to 75%) and the rest is owned by a housing association. You pay a mortgage repayment on the portion you own and reduced rent on the portion you don’t own.

Like the Help to Buy scheme, the goal here is to allow people to buy a house without having to save up a hefty deposit.

The added benefit of Shared Ownership is that you can gradually buy more of the property until you buy the whole thing, a process called “staircasing.”

Benefits of Shared Ownership

Some of the upsides of shared ownership include the following:

Smaller deposit

Because you will be buying a share in the property, your deposit will be smaller. Your mortgage will be based on the cost of your share, and your deposit will be a percentage of that amount rather than the overall price of the property.

Greater stability

Owning a shared ownership property means you won’t experience the disarray of having to move at the landlord’s request. Naturally, this is dependent on you keeping up with repayments, which entails both rent and mortgage in shared ownership properties.

You can increase your share or not

Under shared ownership, you can choose to increase your share if you wish. This could ultimately mean you own the property outright. You get to choose how you want to proceed.

Shares can be sold

Housing associations stipulate that you must stay in the property for at least 12 months before you can sell. Once the year has passed, you are free to sell your shares in the property.

Comparison of Help to Buy and Shared Ownership

Although both options have some similarities and serve the same goal of helping you purchase property, they do have some differences that you should take into account when deciding which option is right for you.

Eligibility

• Help to Buy
• To qualify for the Help to Buy scheme, you must be a first-time buyer who is not renting their existing home. You must also be able to fund at least 80% of the property price through a combination of a repayment mortgage and a minimum deposit of 5%.
• Shared Ownership
• To Qualify for Shared Ownership, you must not currently own another home or at least be in the process of selling one. You must also be over 18 and have income below a specified threshold.

There is no set income threshold for the Help to Buy scheme. It depends on your location and how much you need to borrow. However, as a general rule, for a mortgage, you can’t borrow any more than 4.5x your gross annual income, so working on what you can borrow is a good place to start.

For Shared Ownership, your household must earn less than £80,000 per year. You must also be over 18 and unable to buy a suitable house on the open market.

You may not be eligible for both schemes if you have a poor credit history or if your mortgage, rent arrears or savings are not judged to be sufficient to cover the process of buying the property

Property Type

• Help to Buy
• The Help to Buy scheme applies to new builds only from a builder registered with the scheme, with a maximum price of £300,000.
• Shared Ownership
• For shared Ownership, most properties are new builds, but others are resales. You can check the conditions and qualifications for Shared Ownership in your area.

Deposit Size

• Help to Buy
• The Help to Buy scheme requires a 5% deposit on the property you want to purchase.
• Shared Ownership
• The Shared Ownership scheme requires that you put down 5% of the portion you will be buying. This might be significantly lower than putting up 5% of the purchase price because you will only pay for the share you want to purchase.

Ownership

• Help to Buy
• With Help to Buy, you will have an outstanding mortgage and government loan, but you will effectively own 100% of the property. Also, most properties under this scheme are usually freehold.
• Shared Ownership
• In Shared Ownership, you will only own a portion of the property you purchase between 25% and 75% unless you staircase way up to 100%. In most cases, Shared Ownership properties are leasehold.

Monthly Repayments

• Help to Buy
• With Help to Buy, you’ll only pay mortgage repayments plus £1 per month management fee after that, you will pay interest as well.
• Shared Ownership
• You will pay mortgage repayment and discounted rent

If you decide you want to sell your home, the Help to Buy scheme allows you to sell your home through the open market. If you haven’t fully paid back the money, this is when you will pay back the government loan.

Under shared ownership, you must first offer the property to the housing association so they can find another Shared Ownership buyer. If they can’t find a buyer, then you can sell it on the open market.

With this comparison, you should be able to determine the scheme that best suits your needs and makes it easy to purchase property.