People who are renting in London could save more than £40,000 in two years by purchasing a property using shared ownership, a study has found.
The analysis by Leeds Building Society looked at the cost of buying a 25% share of a £600,000 one bedroom flat in Islington using a £7,500 deposit.
It found renting a similar property on the open rental market, just a short walk away, at a cost of £3,900 per calendar month, would cost £41,004 more over two years.
What’s more, this calculation does not take into account any property price rises. If house prices in the area were to increase, owners could see the value of their 25% share rise accordingly.
What is shared ownership?
Shared ownership offers a way for people on lower incomes to get onto the property ladder. Buyers purchase a proportion of the property and rent the rest meaning the deposit and repayments are lower.
They also have the option, over time, to increase the share they own – a process known as staircasing.
Leeds said, by doing this, purchasers could invest the money saved by not renting to buy a greater share.
Shared ownership is celebrating its 40th anniversary this year and Leeds said it remains the ‘cornerstone’ of affordable housing in the UK.
Matt Bartle, director of products at Leeds Building Society, said: “The scheme has enabled thousands of people to step onto the property ladder and remains a viable option, particularly for first time buyers.”
Lower deposit
Bartle said the challenge of saving for a deposit is frequently named as the biggest obstacle facing anyone wanting to buy their first home.
Yet by taking out a shared ownership mortgage with Leeds, borrowers require a deposit of just 5% for the share they are purchasing. As it’s not a deposit on the entire value, it significantly reduces the size of the deposit required.
What’s more, recent changes to the scheme have made it more accessible and the only restriction is now that borrowers must have a household income of less than £80,000 or £90,000 in London.
A consultation to make changes to shared ownership, which will include making staircasing easier, has recently completed too.
Bartle added: “For many, Shared Ownership makes financial sense as it immediately reduces the size of a deposit, purchasers own a share of their home and can build up equity if they wish, while the monthly cost can be cheaper than an equivalent privately rented home.”
