What about other routes to home ownership?
Traditional home ownership, a quick overview
An individual, married couple or family want to settle down somewhere, so they decide to buy a house; a very prudent financial decision! Using estate agents, both online and in person, they seek their dream home. Once the perfect house appears they approach a series of financial institutions, all with different lending options. With a suitable deposit they can then acquire a mortgage, which they will need to pay off over the next 25–35 years, with interest! They can now live happily ever after.
Home Ownership, the reality
The average age for first time buyers is on the rise. Which is unsurprising because of rising house prices and stagnating wages. So for me and many other younger people we are getting further away from the idyllic description above rather than closer. Now while home ownership may not be a necessity for my life (read my renting for life article), it’s certainly something many of us want to do at some point. The reality for many is, a rising deposit cost, rising living costs and limited availability of higher paying jobs. The current rental sector is overpriced and unstable. Making the opportunities to get onto the property ladder few and far between.
Perhaps then, if it isn’t working for us, we should stop trying to go the traditional route? Specifically in this article I want to explore other methods of getting onto the property ladder in the UK.
Shared Home Ownership
The premise of shared ownership is for buyers to purchase only a share of a property. Either with savings or a mortgage, whilst paying rent on the remainder of the property. These schemes can be run by government, housing associations, or private developers and the initial stake offered is usually between 25–75%. There are of course pros and cons to this solution and an excellent overview of these can be found here. The main cons are: a limited selection of houses, some intial upfront fees and having to ask permission to make physical alterations. However the most significant benefits are: the ability to sell at any time, the greater affordability than both renting and paying a full mortgage and the fact that you own an asset which you can use to get further onto the property ladder.
Co or joint home ownership is where you and a partner, or friends or other family members combine resources to each own a share of a house. Couples will favour the joint tenancy model and friends and relatives tend to favour the tenancy in common model. By combining with shared ownership schemes, this method can be even more affordable. With this method the house is wholly owned, even if by individual friends, making co-ownership a financially more appealing route than shared ownership. Bare in mind however it is still highly recommended that you take a declaration of trust which helps establish rules of how each party involved wishes to handle the management of the property. An excellent overview of Co-ownership can be found here.
A home with floor space of between 18 and 50 square metres can probably be defined as a micro-home (or micro-apartment). The underpinning idea with this style of home is to maximise space efficiency and minimise the clutter from your life. Now while this may not be an option for everyone, it is very possible to build a passivhaus standard micro-home for under £30,000, not including the price of land. If a group of people came together to build a block of micro-apartments the costs might be even lower.
What appeals here is the hugely reduced mortgage, the possibility of having a low carbon, near zero bills home, the value of the property as leverage for a deposit for a bigger home in future and a perfectly suitable place for an individual or couple to live. There might not even be a need to ever upscale if this solution became more widespread. This could be achieved if a larger communal space was purpose built for use by the community, allowing a more stable micro-home community to evolve.
Mutual Home Ownership Schemes (MHOS)
MHOS’ are a completely new way of owning equity in the value of property. The underpinning ideal is to establish affordable housing in perpetuity. This is achieved by creating a community land trust (CLT) who are given stewardship of publicly held land. The council will donate the land free of charge, for the purpose of permanently affordable housing. The members of the MHOS pay for the costs of the build or it is raised through a standard development period loan by the mutual. The whole scheme then gets one corporate loan which is used to repay the development loan. Each individual’s specified number of units of market-value linked equity are financed by monthly payments and held in a common trust fund until that individual wishes to leave. The payment is directly linked to income so that all members are paying roughly around 35% of their net income into the trust. A greater number of market value units will be allotted to you the more you pay. If you leave the mutual you will be repaid the value of the units. Incoming and existing members will then receive the re-distributed units.
This trading of equity shares ensures that the benefit of the land held outside the market by the CLT and the affordability it creates is recycled from one generation of occupant members to the next. The most notable and innovative scheme in the UK is the Lilac Coop scheme. For a more in-depth overview of a MHOS click here.
Some of these avenues are becoming more mainstream, like micro housing, whilst others MHOS’ are completely new to the UK. If we work together we can make these solutions better and even more accessible. Working cooperatively to create housing can be a rewarding solution, as it creates resilient communities with diverse identities and designs. It is certainly the way I want to approach housing and at ehab it’s a journey we want more and more people to take.