Shared Ownership vs Help to Buy
Should I buy through Shared Ownership or Help to Buy?
For buyers who are struggling to buy a home on the open market, both Shared Ownership and the Help to Buy equity loan can offer great alternative routes onto the property ladder. However, there’s often confusion around the two schemes and how they differ from one another. Our Shared Ownership vs Help to Buy article looks at all the key differences between the two home buying schemes in order to help you decide which is the right option for you!
What is the difference between Shared Ownership and Help to Buy?
Also referred to as part-buy part-rent, Shared Ownership allows buyers to purchase a share of a home – usually between 25% and 75%. However, this amount can vary depending on if you were to purchase through the new Shared Ownership model which allows initial shares of 10%. Purchasers will pay a mortgage on the share that they own, and a below-market-value rent on the remainder to a housing association. You can find out more about Shared Ownership here.
Help to Buy
Help to Buy is a government backed scheme, and the Help to Buy equity loan enables purchasers to buy a new build home with the help of an equity loan, also known as shared equity. The government provides a loan of up to 20% of the home (or 40% in Greater London), so the purchaser only needs to raise a 5% deposit, with a 75% mortgage (or 55% in Greater London) making up the rest; please note that the Help to Buy: Equity Loan is subject to eligibility, terms and conditions. You can find out more about Help to Buy here.
Please note that the Help to Buy equity loan closed to new applicants on October 31st, 2022. Find out more on Share to Buy.
Shared Ownership and Help to Buy eligibility
Shared Ownership is available to first time buyers, those who are in the process of selling their property, or have previously owned a home but have since sold. Buyers must be at least 18 years old and unable to buy on the open market. To be eligible for Shared Ownership, your maximum household income must not exceed £80,000 per annum, or £90,000 in London. You can find out more about the Shared Ownership eligibility criteria here.
Help to Buy
The Help to Buy equity loan is only available to first time buyers, meaning those who have never owned another property either in the UK or abroad. Buyers must be at least 18 years old and unable to buy on the open market, however there is no maximum income cap for this scheme. You can find out more about the Help to Buy eligibility criteria here.
Homes available through Shared Ownership and Help to Buy
Shared Ownership is available on purpose built homes – these will either be new build or resale properties that are being sold by the current Shared Owners. You can find out more about these different types of Shared Ownership homes here.
Help to Buy
The Help to Buy equity loan is only available on specific new build homes where where Homes England have a registration agreement with the housebuilder. As of 2021, the government also introduced regional price limits for the Help to Buy scheme, meaning that the property you are buying cannot exceed the regional cap for your area. For further information about the home-buying and application process with the Help to Buy: Equity Loan, please refer to the Help to Buy Agent in your area.
Deposits for Shared Ownership and Help to Buy homes
The deposit for a Shared Ownership home is usually 5-10% of the share that you are buying, not on the full value of the property. So, if a property costs £500,000 and you purchase a 25% share – equating to £125,000 – a 5% deposit on your share would be £6,250. You can find out more about the costs of buying a Shared Ownership home here.
Help to Buy
For a Help to Buy home, the deposit will be at least 5% of the full value of the home – for example, a 5% deposit of a home costing £500,000 would be £25,000. However, as the equity loan counts towards your deposit, you may be able to take out a mortgage where you might otherwise struggle; this also means that you don’t have to take out a costly 95% mortgage. You can see a further breakdown of the Help to Buy costs here.
Repayments on Shared Ownership and Help to Buy homes
A mortgage will be paid on the share you own, with a subsidised rent on the remainder being paid to the relevant housing association, along with any service charges and ground rent. If you choose to increase your owned shares (also known as ‘staircasing’), your monthly mortgage payments will increase and your rent will decrease, up until the stage where you own 100% of the property. At this time, you will no longer pay any rent, just your mortgage and any service charges/ground rent where applicable. You can find out more about the staircasing process here.
Help to Buy
The Help to Buy equity loan is interest free for five years – during this time, you are only required to pay your mortgage and a monthly management charge of £1. After the initial five years, the purchaser will pay an annual fee of 1.75% on the amount of the outstanding loan; this fee will increase each year with inflation.
Stamp Duty on Shared Ownership and Help to Buy homes
First time buyers in Shared Ownership homes will pay zero Stamp Duty on the first £300,000 of any home that costs up to £500,000. Stamp Duty will still apply on homes valued above £500,000.
In many cases it will not be necessary to pay Stamp Duty on an initial purchase; when purchasing a Shared Ownership property you will have the option of paying Stamp Duty on the full value of the property as if you were buying outright or you can choose to only pay Stamp Duty on the share that you are purchasing. However, you will generally have to pay Stamp Duty on the whole value of the property when your owned share equals or exceeds 80%.
The calculations for Stamp Duty can be complicated, but there are options which your solicitor will be able to provide the necessary help and advice on. You can find out more about Stamp Duty and the costs of buying a Shared Ownership home here.
Help to Buy
When you purchase a Help to Buy property with an equity loan, you will need to pay Stamp Duty on the property value if it is above the tax threshold at that time. However, generally speaking, if you’re a first time buyer, you will pay no Stamp Duty on properties worth up to £300,000. For homes costing up to £500,000, you will not pay Stamp Duty on the first £300,000 but will pay on the remaining amount up to £200,000.
Selling a Shared Ownership or Help to Buy home
You can sell the shares you own in your home at any time. Under the terms of your lease, the housing provider normally has a set period (around eight weeks) to try and find a buyer for your home first. If they do not find a buyer during this time, you can then sell your home privately or through an estate agent of your choice.
You’ll need to obtain an independent valuation prior to sale to determine the current value of the property. You can find out more about selling a Shared Ownership home here.
Help to Buy
You will have to pay back the Help to Buy equity loan when you sell your home or at the end of your mortgage period – whichever comes first. If you haven’t repaid the loan by the time you come to sell the property, the government will reclaim its percentage stake in your home at its current value. So, if you buy using the 20% Help to Buy equity loan, you will pay back 20% of the sale price of your home to the government when you sell.
You’ll need to obtain an independent valuation prior to sale to determine the amount to be repaid. You can find out more about selling a Help to Buy home here.
Share to Buy is a one stop shop for first time buyers looking to get a foot on the property ladder. Start planning your future today and check out our available properties.