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Helping buyer dream become affordable reality

Bromford Homes Sales and Marketing Director Bev Hall explains why shared ownership adds up to a great option for first-time buyers

TIMES may be tough but most of us still want to own our homes. In fact, four out of five people want to see their homebuying dream come true within ten years time, according to the latest research findings from the Council of Mortgage Lenders.

This very high figure − actually down slightly from a year ago − comes as no surprise to those of us in regular contact with first-time buyers who've taken their first step onto the property ladder through shared ownership at villages, towns and cities across central England.

Like those questioned by the CML, they see home ownership as a more desirable, more affordable and more secure alternative to renting from a private landlord or staying with family or friends.

Looking at people who say they would like to buy in the next two or three years, the CML survey highlights private sector tenants as those with the strongest desire to buy their own home − closely followed by people living with friends, their parents, other relatives.

So the desire is there. The big question then is what stops so many would-be homebuyers?

A number of obstacles are listed by the 8,000 or so people that responded to the CML survey but the biggest, it seems, is a lack of savings. Lenders these days often require hefty deposits running into tens of thousands for an open market sale and, for many first-time buyers who can't rely on the so-called Bank of Mum and Dad, that means a long saving slog of ten years or more.

Or they will simply never be able to afford to buy their first home.

Again this mirrors what shared ownership buyers tell us and the sentiment was translated into figures by the National Housing Federation at the start of our recent Shared Ownership Week 2013.

Bev Hall on HomeBuy
 
NHF research revealed that the average first-time buyer deposit in the South West − just one of the regions where we have developments − is now an eye-watering £32,209¹ while the average shared ownership deposit is less than half that at £13,065¹. And although the average first-time buyer on the open market would need a gross income of £36,811² to afford a mortgage, the average shared ownership buyer's income is just £22,800.

Figures like that really matter in an area like, say, Cirencester − Capital of the Cotswolds − where property prices are generally fairly high and average salaries are fairly low.

That's why the NHF also compared total monthly housing costs and confirmed that shared ownership is significantly cheaper than buying outright or renting privately. With an average total monthly cost of £546³ in the South West, shared ownership is £284 cheaper than for first-time buyers on the open market and £113 cheaper than for private sector tenants.

Here at Bromford Homes, we also crunched the numbers to produce some typical total monthly housing costs using our successful Fortuna shared ownership development in Cirencester as an example and following a similar formula to the NHF.

Taking three examples ranging from a one-bed apartment to a three-bed house, we assumed that the buyer had a 40% share of their home with an 80% LTV mortgage and then − like the NHF − added low-cost rent and a typical service charge. The figures are only intended as guidelines because mortgage deals can vary but this is what we found.

Total cost for one-bed apartment with full market value of £125,000: approx £462* pcm

Total cost for two-bed house with full market value of £198,000: £603.83** pcm

Total cost for three-bed house with full market value of £240,000 £731.58*** pcm

If you consider that property prices in Cirencester and other sought-after places in Gloucestershire are higher than many other parts of the South West, then these figures compare really well with the regional average of £546 pcm quoted by the NHF.

Fortuna showhome lounge

Of course, the monthly figures are higher if − like many shared ownership buyers − you put down a smaller deposit of, say, 5% rather than the 20% we've quoted.

That, of course, is what can really make the difference for many first-time buyers. If you look at our two-bed homes at Fortuna, your deposit could be as little as £2,475 if you buy a minimum 25% share costing £49,500 and can get a 95% mortgage on that amount.

A £2,475 deposit makes that first step towards owning your own home truly affordable and we work closely with all of our customers − using a special formula − to make sure that they only buy the share that they can afford and that the total monthly payments are affordable too.

We know it works because we've got something like 76 shared ownership buyers who've collected their keys at Fortuna and are, to coin the cliche, living the homeownership dream.

And the shared ownership success story continues. Our weekend open days at leading Cirencester estate agents Perry Bishop & Chambers were very popular with two more reservations and many visits from other prospective buyers who asked us lots of questions about Fortuna and shared ownership. Questions that we're always happy to answer. So if you want to know more about Fortuna or any of our developments − or about HomeBuy shared ownership − call 0845 60 10 878 or check out the great video on this website.

HOW THE FIGURES ARE WORKED OUT

1 Based on an 80% LTV mortgage on the median first-time buyer house price (using Oxford Economics (2012), Housing Market Analysis report for the National Housing Federation). The shared ownership equivalent is based on 80% LTV mortgage on average initial share purchased (using CORE shared ownership sales data April 2011 to March 2012).

2 Income needed for an 80% LTV mortgage at 3.5 times annual earnings for the average FTB home.

3 FTB costs based on an 80% LTV mortgage, over 25 years and at a 6% interest rate. Shared ownership costs based on the average initial share sold, with an 80% LTV mortgage, over 25 years, at a 6% interest rate and the average rent/service charge (using CORE shared ownership sales data April 2011 to March 2012). Average single person income after tax from forecasts by Oxford Economics. More information about the NHF survey at www.housing.org.uk/

* Cost breakdown for one-bed apartment
Bromford rent if buying 40% of one-bed apartment with full market value of £125,000:
Basic rent £148.62
Service charge £104.20
Total £258.82
Mortgage over 25 years based on a 20% (£10,000) deposit at interest rate of 3.79% = approx £209 pcm. This is an average figure based on the Cirencester area, as supplied by a local IFA.
Total monthly cost with 20% deposit approx £462 pcm

** Cost breakdown for two-bed house
Bromford rent if buying 40% share of two-bed house with full market value of £198,000:
Basic rent £248.99
Service charge £23.84
Total £272.83
Mortgage over 25 years based on a 20% (£15,840) deposit at interest rate of 3.79% = approx £331 pcm.
This is an average figure based on the Cirencester area, as supplied by a local IFA.
Total monthly cost with 20% deposit £603.83 pcm

*** Cost breakdown for three-bed house
Bromford rent if buying 40% share of three-bed house with full market value of £240,000:
Basic rent £306.74
Service charge £23.84
Total rent £330.58.
Mortgage over 25 years based on a 20% (£19,200) deposit at interest rate of 3.79% = approx £401 pcm.
This is an average figure based on the Cirencester area, as supplied by a local IFA.
Total monthly cost with 20% deposit £731.58 pcm

Terms and conditions apply. Mortgage rates may vary and any mortgage offered is subject to the lenders criteria. Your home is at risk if you do not keep up repayments on your mortgage or any other loan secured against it. Be sure you can afford the payments before entering into a credit agreement. Full terms and conditions available on request. Prices and availability correct at time of going to press.
All content on this website is provided for information only and should not be considered as advice. It is strongly recommended that you seek advice of a qualified, independent financial advisor before considering any type of regulated mortgage product. Actual available rate will depend upon your circumstance. Ask for a personalised illustration.

More information about the CML survey at http://www.cml.org.uk/cml/publications/newsandviews/134/508

11 April 2013