Can Shared Ownership Ease the Burden on the Bank of Mum and Dad?

When it comes to buying our first home, almost half of us rely on support from the Bank of Mum and Dad to help us afford such a big purchase.

According to Savills, gifts and loans from parents were expected to total £9.8 million in 2021, helping 169,000 first time buyers (49% of the total) onto the property ladder. Over the last ten years the financial contributions of parents have added up to £53.9 billion given to 1.4 million buyers.

With the cost of living currently soaring, it’s hard to see that first time buyers will find it any easier to save up enough for a deposit in the near future, but will that also impact the ability of parents to offer the same kind of financial support?

And what about first time buyers whose parents can’t afford to dip into their savings to help their children buy a home?

“Parents have become the gatekeepers to their children’s adulthood; the wealth level of the previous generation ultimately determining which milestones are achievable and which are not,” said Becky O’Connor, head of pensions and savings at Interactive Investor. “The scale of the assistance also demonstrates how the odds are stacked against those whose parents can’t help when it comes to wealth accumulation.”

Shared Ownership offers an alternative route to financial support, but can it plug the gaps that are holding some buyers back from owning their own home?

The ‘Fourth Tenure’

When we talk about home ownership, we have traditionally described three main forms of tenure:

• Freehold – This means owning the property and the land that it sits on and is how most houses are sold.
• Leasehold – This means leasing the property from the freeholder/landlord and paying ground rent to them.
• Commonhold – Introduced in 2004, this is still very rare and means each unit-holder in a multiple occupancy development owns the freehold of their home with a commonhold association owning and managing the common areas.

The Government is now talking about Shared Ownership as ‘the fourth tenure’. But what is it?

Shared Ownership enables people to buy a share of a property and pay a subsidised rent on the  remaining share. This means they don’t need as much of a deposit up front because they only require a smaller mortgage, making home ownership more affordable.

By December 2021 there were estimated to be 202,000 households living in a Shared Ownership home in England, which is less than 1% of all households. However, the supply of them has increased, up from 4,080 delivered in 2015/16 to 17,100 in 2020/21, and building more Shared Ownership homes is part of the Affordable Homes Programme for 2021-26.

The Government also made changes to how Shared Ownership worked last year to make it more accessible, including:

• Reducing the minimum initial purchase share from 25% of the property to 10%
• Reducing the minimum additional share purchase involved in ‘staircasing’ (buying shares incrementally towards full ownership) from 10% to 5%
• The cost of repairs and maintenance to be met by the landlord for the first 10 years

Can Shared Ownership plug the gap?

In 2019/20, 33% of Shared Ownership buyers were aged between 30-39, making that the largest age group ahead of 25-29s on 25%. This matches the profile of the average first-time buyer in the UK, who is 34 years old, which is 6 years older than in 2017.

This is because the gulf between earnings and property prices keeps on growing. According to family mortgage broker Tembo, today’s first-time buyers are expected to pay a minimum of £270,620.59 for their first home, 9 times the average UK salary, whereas homeowners over the age of 45 only paid an average of £78,049.59 for their first property.

The Bank of Mum and Dad can help in many ways, from gifting money for the deposit to even taking out a joint mortgage or acting as a guarantor for the mortgage. And the statistics show that Shared Ownership is yet to break through as a common route to purchase for first-time buyers, still only representing 1% of all households with only around 40% of buyers saying that they understand what it is and how it could help them..

But could that change? With 50% of first-time buyers saying that they couldn’t afford a house without their parents’ support, Shared Ownership offers them an alternative. However, this will only happen if if more homes can be made available and greater awareness of the scheme can be achieved.

A report last year from SO Resi, the Shared Ownership brand of Metropolitan Thames Valley Housing, and Cambridge University showed that demand is currently greater than supply, with some areas of the country having 10 enquiries for every home.

The report also found that nearly half of all Shared Ownership homes built in the last five years were in London and the South East, so is it time for housing providers to offer a greater allocation of their stock for this scheme?