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Why Shared Ownership housing economics now look compelling

2 min read 14 Dec 23

London’s renters have seen rents rise by up to 10%1, while some home owners have seen mortgage rates double on the back of interest rate rises. Likewise, affordability constraints have increased for shared owners, who face higher rents, mortgage payments and service charges. Yet Shared Ownership could still offer considerably better value than other housing options for new buyers.

The part-buy-part-rent model offers an affordable way to buy a home, with a smaller deposit than is required for full ownership. Furthermore, the rent paid by shared owners on the share of the property they don’t own is set at 2.75% of the value of that share, which is significantly lower than the equivalent market rent. 

Rent rises have therefore come from a lower base than in the private market. The shift to CPI-linked leases from RPI-linked leases over time, should also benefit future shared owners, given CPI is typically lower than RPI inflation. 

“Shared Ownership looks more affordable than private renting or traditional home ownership, even with maintenance costs factored in.”

Equally, higher mortgage rates are applicable to a proportionately smaller loan than for home owners. For example, a first time-buyer in the open market could find themselves paying a 6% mortgage rate on 95% of the property value whereas a shared owner could pay 6% on as little as 25% of the property value.

This means combined annual rent and mortgage costs for shared owners are typically lower than both home owners’ and private renters’ costs.

All-in better value

Even with the cost of maintenance factored in (inherent in both renting and owning properties), overall Shared Ownership occupational costs still typically represent better value than other housing options for new buyers today. 

New model leases for Shared Ownership will also reduce service charges for some shared owners, with new buildings guaranteed2 and major repair costs split between shared owners and their landlords over the first ten years of a building’s life.      

“Running costs are intrinsic with any property, whether rented or owned. Though newer, well-managed buildings can be more cost-efficient to occupy.

The difference is, compared to renting, Shared Ownership offers an opportunity to put down roots and benefit from potential house price growth,” says Alex Greaves, M&G Real Estate’s Head of UK and European Living. 

Now and for the long term 

With buying a home still challenging given unaffordable house price to income ratios, Shared Ownership offers an attractive means of getting on the housing ladder for those unable to raise large deposits. In today’s environment, the model reflects particularly good economics relative to other housing options, in our view. This dynamic looks set to continue, with ‘higher for longer’ interest rates.

1 Rents have risen by 5% since the end of 2022 and by 9% since the end of 2021, ONS, September 2023. 
2 New buildings are guaranteed by developers for the first ten years.

The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast. 

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