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 about the two schemes and how they differ from one another.

Shared Ownership vs Help to Buy 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!

 

The Scheme

Shared Ownership

Also referred to as part buy/part rent, Shared Ownership allows buyers to purchase a share of a home – usually between 25% and 75%. Purchasers will pay a mortgage on the share that they own, and a below-market-value rent on the remainder to a housing association.

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.

 

Eligibility

Shared Ownership

Shared Ownership is available to first time buyers, and those who are in the process of selling, 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.

Help to Buy

The Help to Buy equity loan is available to first time buyers, those who have previously sold a home, or those who will have sold their current property before or at the point of completion on their Help to Buy home. Buyers must be at least 18 years old and unable to buy on the open market, and there is no maximum income cap for this scheme.

 

Property Type

Shared Ownership

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.

Help to Buy

The Help to Buy equity loan is only available on new build homes, and you cannot buy a property that is on the market for more than £600,000.

 

Deposit

Shared Ownership

The deposit for a Shared Ownership home is at least 5% 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.

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.

 

Repayments

Shared Ownership                                                              

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 your property. At this time, you will only pay your mortgage.

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

Shared Ownership

In many cases it will not be necessary to pay Stamp Duty Land Tax on an initial purchase. 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 Land Tax can be complicated, but there are options which your solicitor will be able to provide the necessary help and advice on.

Help to Buy

You may need to pay Stamp Duty Land Tax when you purchase. However, if you’re a first time buyer, or the purchase price of your home is £500,000 or less, you can get a discount that means you pay less or no tax.

 

Selling

Shared Ownership

You can sell the shares you own in your home at any time. Under the terms of your lease, the housing provider normally has an eight week period 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.

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.

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Share to Buy offers a number of helpful guides to help you weigh up your home buying options and make an informed decision about your next steps.

To find out more about Shared Ownership, you can visit our Shared Ownership 101 and Shared Ownership Pros & Cons. Or for more information on the Help to Buy equity loan, visit our Help to Buy 101 and Help to Buy Pros & Cons.

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.