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50% of first-time buyers consider shared ownership

A sold sign outside a houseNearly half of first-time buyers are considering shared ownership, according to new research by Lloyds TSB. Neil Faulkner looks at how these schemes work and the drawbacks.

A quarter of first-time buyers need help to make mortgage repayments affordable, the research shows.
And another quarter want to be able to buy in an area they couldn't afford on their own.

This has caused many first-time buyers to consider shared ownership schemes.

Buying a share of a property means the cost of any deposit, and the cost of the mortgage will be cheaper. And you can usually pay and increase your share of ownership in later years.

Here’s a summary of current shared ownership schemes across the UK.

New Build HomeBuy (England)

With this taxpayer-funded New Build HomeBuy scheme, you buy between 25 per cent and 75 per cent of a newly-built property, putting down a deposit for your share only.

You pay rent on the part you don't buy.

HOLD and OPSO (England)

Home Ownership for People with Long Term Disabilities (HOLD) and Older People's Shared Ownership scheme (OPSO) for the over-55s are similar to NewBuild HomeBuy.

Visit public services website for more information.

Co-ownership Scheme (Northern Ireland)

This is similar to the New Build HomeBuy scheme, except you can buy any property, and you buy 50 to 90 per cent share to start with and rent the rest. Find out more here.

FirstBuy (England, Wales and Scotland)

Through the First Buy scheme, you buy 100 per cent of an eligible new-build property, but the government and housebuilder give you a 20 per cent loan.

This is free for five years. Then it costs just 1.75 per cent, which increases with inflation plus 1 per cent per year.

You pay for the other 80 per cent through a deposit and mortgage. The deposit could be just £5,000 on a £100,000 property.

Wales has a similar scheme with a loan up to 50 per cent, and Scotland up to 40 per cent. These don't charge any interest.

When you sell, the housebuilder and government take their percentage based on the sale price.

HomeBuy Direct (England and Wales)

The HomeBuy Direct scheme is virtually identical to FirstBuy, except the loan can be 30 per cent, or as high as 50 per cent in some rural parts of Wales.

Armed Forces Home Ownership Scheme (England only)

This is also like FirstBuy, but the loan can be as much as 50 per cent.

It's limited to armed forces personnel with more than four years' but less than six years' service only.

Social HomeBuy (England, Scotland, Wales)

This scheme allows council or housing association tenants to buy part of their current home and pay rent on the rest of it. 

In all other respects, this works just like New Build HomeBuy. Each region has a different name for this scheme.

Rent to Buy (England and Wales)

Rent a property at 80 per cent of the market rent for five years, with the view to buying within that time.

Find out more about Rent to Buy.

Family and friends

Finally, you can always consider buying with friends or relatives. You split the deposit and mortgage however you want.

In the event of you or your friends wishing to opt out of the agreement at a later date, make sure you have a legally-binding exit plan.

Buyer beware

All taxpayer-funded shared ownership schemes are limited, so many first-time buyers miss out.

Some schemes are often limited to a few developments in the whole country. Also, some schemes expire as early as 31 March, 2013.

Some schemes are limited to new-build homes, which can come with extra risks such as  construction problems and small rooms, for example. It's also easier for sellers to overprice them.

Getting a new mortgage to increase your share might be problematic. You'll potentially have difficulty selling the property later, or getting a fair price.

Also, many mortgage lenders don't do shared ownership. This limited choice can mean slightly higher prices.

What do you think?

Would you consider a shared ownership scheme?

We want to hear from you! You can share your views on the message board below.

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Neil Faulkner

Neil Faulkner

Neil Faulkner waded his way through a mountain of claims as a paralegal before moving on to be an insurance consultant and claims manager. He is a long-term investor, and one-time property owner and landlord. He writes about property, investing, insurance, consumer issues, and helping people get out of debt misery.

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