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Shared ownership too expensive for London first-time buyers

Shared ownership schemes are intended to help cash-strapped first-time buyers onto the property ladder, but Which? research has found that most young people in London are unable to afford even the minimum share.

Shared ownership involves buying a share of between 25% and 75% of a property and paying rent on the remainder. For many people struggling to save up a large enough deposit to buy a home of their own, this is the most realistic way of buying a home.

However, our research shows that buying even the minimum share of a studio or one-bedroom shared ownership property within a 20-mile radius of London is impossible for most people aged under 30.

  • If you’re interested in buying a shared ownership home, call Which? Mortgage Advisers on 0808 252 7987 for unbiased, expert mortgage advice

Buyers aged under 30 are priced out of the market

We looked at 525 shared ownership properties within a 20-mile radius of central London in November 2016 and found that the average minimum share of a studio or one-bedroom home costs £145,146 (the average total price of such a property is £368,953).

If you wanted to buy the minimum share of one of these properties using a 95% mortgage, the 5% deposit would cost you £7,258.

You’d then spend £1,189 on mortgage repayments, rent and service charge each month according to data from First Steps, the shared ownership organisation for London, with all the other costs of home ownership charged on top of that.

When you apply for a mortgage, your take home pay (after tax and national insurance contributions) will need to be at least double this amount to pass affordability checks. With that in mind, you’d need to be earning at least £37,300 a year – considerably more than the average £27,900 earned by Londoners aged under 30.

This affordability gap means the minimum share of just over three quarters (76%) of studio and one-bedroom shared ownership properties in and around London are beyond the means of most under 30s.

Shared ownership costs by number of bedrooms

The interactive chart below shows the average monthly costs involved with owning the minimum share of a shared ownership property within 20 miles of central London.

Shared ownership more achievable for over 30s

The picture might seem bleak, but there are some opportunities out there for older homebuyers.

With average earnings of £43,089, Londoners aged 30-39 are more likely to be able to afford a shared ownership property.

The average 30-39 year old in the capital could afford the minimum share of 71% of studio and one-bedroom properties and just over half (55%) of all shared ownership properties.

  • First-time buyer advice – from deposits to exchanging contracts, check out our guides on buying your first home

No-go zone: properties in Zone 1 an impossible dream for most buyers

When we looked at price differences between transport zones, not one of the 28 studio and one-bedroom shared ownership properties in centrally located Zone 1 was affordable for the average person under 30 – and just over two thirds were unaffordable for buyers aged 30-39.

Looking further afield, the under 30s face a tough time getting onto the property ladder at all, with almost 90% of Zone 2 and 3 properties unaffordable and more than half of the properties in Zone 4 too expensive for them.

The graph below shows the monthly cost (mortgage, rent and service charge) of owning the minimum share of a studio or one-bedroom property broken down by transport zone:

In the table below, you can see the percentage of people for whom a shared ownership is unaffordable broken down by age:

Shared ownership: affordability by zone
Zone Number of properties Average monthly cost % unaffordable for under 30s % unaffordable for under 40s % unaffordable for 30-39 year olds
1 28 £1,450.57 100% 85.71% 67.86%
2 77 £1,331.18 89.61% 66.23% 41.56%
3 34 £1,167.65 91.18% 47.06% 26.47%
4 33 £1,019.52 57.58% 21.21% 9.09%
Table notes: property and costs data from sharetobuy.com, 21 November 2016. ‘Affordable’ based on home ownership costs (mortgage, rent and service charge) making up less than 50% of net earnings. Mean average earnings for people working in London from September 2016 ONS data: age 18-29 – £27,908; age 18-39 – £37,026; age 30-39 – £43,089.

David Blake of Which? Mortgage Advisers said: ‘This research demonstrates the impact of rising house and rental costs in the capital. Buyers need to be realistic about what they can borrow, and I would suggest that they look at numerous properties as rents can vary considerably.

‘That said, it’s not all doom and gloom. The mortgage market is very buoyant right now and lenders certainly have an appetite to lend to first-time buyers.’

  • Before applying for a shared ownership mortgage it’s vital that you understand what you can really afford. Which? Mortgage Advisers can give you expert, impartial advice based on your personal circumstances. Call 0808 252 7987 for a free consultation.

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Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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