Buying a property in the UK has become nearly impossible for the average professional. To put it bluntly, average house prices increased by 10.3% in the year to November 2022. The average UK house price was £295,000 in November 2022 according to the office of national statistics, and although it is slightly falling, the average professional will find it very difficult to get on the property ladder. We’ll first try to understand why buying a home has become so unaffordable in the UK, then we’ll look into Buying Schemes set up by the government to help first-time buyers get on the property ladder.
Why are houses so expensive?
Have you ever been frustrated about the fact that your rent is more expensive than the mortgage repayments you’d have to make if you owned a home? This is even worse for professionals who rent in London, where the quality of flats has significantly deteriorated over the years; combine this with the frustration of having to share a kitchen and bathroom with 5 other people… Well, actually the banks not lending you money isn’t the real problem. The root of the housing crisis is simply that we’re not building enough homes in the UK, it merely boils down to supply and demand. The demand for houses has stayed relatively high whilst the supply has not kept up with it which has been driving the prices up.
Given that house prices are highly inflated compared to the average wage in the UK, most people can’t afford to get a mortgage on their own for the whole price of many properties. The shared ownership scheme allows you to buy between 25% and 75% of a new-built property from a housing association and to staircase progressively. It can be a good option for people wishing to live in London, where the average house price currently sits at £542,311!
What are the cons of shared ownership?
- Although you own a percentage of the property, you’ll be required to pay rent on the remaining percentage you don’t own. Ultimately, this means that you’ll get the cons of being a homeowner and tenant at the same time as you’ll have to fix anything that goes wrong with the property whilst still paying rent. Luckily the rent you have to pay is capped and is much less than if you were renting the whole percentage of the house.
- As you only own a share of the property it could be difficult to sell if you decide to move, however, this highly depends on the area and the property.
- As you’ll have to buy a new build, the price of the property may be inflated which means that you could end up spending too much money or even get negative equity if you decide to sell your share early to move somewhere else.
- Some housing associations will make it difficult to staircase. Unfortunately, although this scheme is designed to help people, some housing associations will want to keep turning a profit from the property, and will make it hard for you to staircase. Double-check the reviews on the housing associations you’re interested in, as this will significantly impact your overall experience.
What are the pros of shared ownership?
- You get a foot on the property ladder! Although you’re still required to pay rent, you’re also officially a homeowner. Ultimately, this means that you’ll own an asset whose value increases over time. This also means housing security.
- You get to live in an attractive area. Let’s face it, if you’re a young professional looking for fun and opportunities, you don’t want to live in the middle of nowhere in the North East. Well, the SO scheme allows you to live in places you might have not been able to live in otherwise. With just £165,000 you may be able to own 25% of a flat in zone 2 or 3 in London for example (yes zone 1 is and will always be too expensive).
- You may be able to get a lodger. If you decide to live in an attractive area, you could easily take in a lodger to offset the cost of rent you have to pay to the housing association. Usually, this depends on the housing association and you will need to check beforehand whether you’re allowed a lodger or not. This can be a good option if you don’t mind sharing and want to minimise your payments towards service charges, ground rent, and the rent on the remaining percentage.
Lifetime ISA (LISA)
A Lifetime Individual Savings Account or LISA is a tax-free savings account set up by the government to help first-time buyers get on the property ladder. To put it simply, you can pay up to £4,000 into your LISA every tax year and you will get a 25% bonus from the government on everything you’ve put in. i.e. if you save £1,000 into your LISA you get a £250 bonus, and if you save £4,000 you get an extra £1,000, which means that you can save up to £5,000 per tax year in your LISA. There aren’t any cons associated with LISA, and if you’re thinking about buying a property you should absolutely open one if you haven’t yet.
Important points to remember about LISAs
- You cannot use the money for anything else than buying your first property in the UK or for retirement. Withdrawing the money early will result in paying a 25% penalty.
- The property you choose to buy must be valued under £450,000.
- You can only pay up to £4,000 into your LISA each tax year.
Although buying a house in the UK remains challenging for the average individual, there are some schemes available to facilitate to process. However, buying schemes aren’t durable solutions to the fundamental problem that is the housing crisis. The issue needs to be dealt with from its root for things to significantly change. Interestingly, at the time of writing this article, house prices are going down. Could this be a step towards a better future for the housing market?