Louise Mitchell never anticipated that after purchasing a 25 percent share of a one-bedroom flat in east London, she would remain there after 11 years.

Using the government’s shared ownership scheme designed to help individuals obtain a stake in a property while paying reduced rent on the remaining share, Mitchell found the process was billed as a pathway to homeownership. “It was really marketed as a firm step on to the housing ladder,” she shared.

Now 47, Mitchell repaid her £52,000 mortgage in 2017 using inheritance funds, but she finds it increasingly difficult to save for a larger residence in London. From 2013 to now, her rent and service charges have surged from £360 to £795 per month.

She expressed concern that the rising costs and fears regarding high-rise buildings, especially post-Grenfell disaster, could deter potential buyers. Her property has remained unsellable since a fire in 2017 due to cladding issues, which are finally being addressed.

“I’m in my late forties and want a house with a garden, but I am stuck here,” she lamented. “It was supposed to help me move up, but I can’t. I haven’t benefited at all from the scheme.”

Shared ownership isn’t the only initiative targeting first-time buyers; however, many others have also yielded disappointing results. The Help to Buy equity loan scheme provided first-time buyers with an interest-free loan of 20 percent (or 40 percent in London) for five years, distributing £24.7 billion across 387,195 homes. Critics argue that, restricted to new builds, it contributed to inflated housing prices, with a Money investigation revealing one in eight properties lost value by the time borrowers settled their loans.

Though Help to Buy concluded in March 2022, several alternative schemes still exist, each presenting unique offers and challenges.

Shared Ownership

Established in the 1980s to provide affordable housing, shared ownership caters to households earning £80,000 or less (£90,000 in London). Homebuyers can initially purchase a smaller stake, typically 25 percent, to enhance affordability and potentially increase their share over time through a process known as staircasing. According to government statistics, private sales under this scheme rose from 7,734 in 2014-15 to 17,126 in 2022-23, with 7 percent of first-time buyers utilizing the program last year.

David Fell from estate agency Hamptons noted, “Given the typical deposit requirement of 10 percent of the share purchased, shared ownership is relatively accessible, even with low savings and higher mortgage rates.”

However, the scheme faces substantial criticism. In March, a levelling up, housing, and communities committee determined that shared ownership is “drastically failing to deliver an affordable route to homeownership for too many people,” pointing to the issues of rising rents, elevated service charges, and intricate leases.

Typically, rent starts at 2.75 percent of the property share not owned, increasing annually based on inflation plus an additional 0.5 percentage points.

Floris ten Nijenhuis from the app Stairpay, which educates users about the long-term expenses associated with shared ownership, stated that those who don’t staircase may end up paying more than private renters after around seven years. Only about 2 percent of shared owners achieved staircasing to 100 percent last year according to Hamptons’ data.

Other costs also come into play: even if owning just 25 percent of the property, individuals remain responsible for full maintenance and repair costs, as well as fees related to staircasing each time, including legal fees and stamp duty once shares surpass the 80 percent mark.

Moreover, selling shared ownership properties presents a challenge, as owners typically can only sell their share and may be required to sell back to the housing association.

Paula Higgins from the HomeOwners Alliance remarked, “Initially, people enjoy the benefits since they are no longer renting and feel secure in ownership. However, satisfaction rates tend to diminish over time.

“More upfront information is needed regarding the comprehensive costs associated with shared ownership beyond just the first year.”

Help to Buy and Lifetime ISAs

The Help to Buy ISA was introduced in 2015 but has since been replaced by the Lifetime ISA as of April 2017. Both accounts offer a 25 percent government bonus on funds saved towards the purchase of a first home, allowing a monthly saving of £200 in the Help to Buy ISA and up to £4,000 annually in the Lifetime ISA.

These accounts have proven popular; the Help to Buy ISA assisted in purchasing 601,476 properties worth a cumulative £107 billion from December 2015 until March, while 171,050 individuals have utilized £2.19 billion from Lifetime ISAs for their first homes.

Nevertheless, limitations have emerged. Each account imposes a property price cap: £250,000 for the Help to Buy ISA (£450,000 in London) and £450,000 for the Lifetime ISA. These thresholds remain unchanged since inception despite an overall 40 percent rise in the average property value from December 2015 to £241,502 in June. Had the £450,000 ceiling increased accordingly, it would stand at £630,000 today.

Lifetime ISA holders aiming to purchase properties exceeding the caps face a 25 percent penalty for withdrawing funds, losing both their government bonus and part of their savings. Penalties totaled £47.2 million in 2022-23. In contrast, the Help to Buy ISA does not incur penalties for withdrawals, albeit with lower property price limits.

Matt McKenna from financial research company Finder expressed, “It’s a ludicrous situation. Many individuals are left grappling with challenging decisions over how to use savings cultivated over many years.”

Natalie Pringle, 35, aspires to use her £25,000 savings from her Lifetime ISA to purchase a home. Living in southwest London, she worries about locating a property within the £450,000 limit and fears losing over £6,000 should she need to withdraw her funds, prompting her to halt savings in her ISA.

“These penalties and the price limit often render the account ineffective. If I had to pay a penalty, it would significantly set me back,” remarked Pringle. “The scheme is designed to motivate savings, yet the restrictions appear to contradict its very intent.”

The Mortgage Guarantee Scheme

In April 2021, the government rolled out a mortgage guarantee scheme to prompt banks to offer mortgages with smaller deposits.

Data from the Financial Conduct Authority indicated that the share of new mortgages agreed upon with a loan-to-value (LTV) ratio between 90 and 95 percent plummeted from 4.15 percent in late 2019 to merely 0.8 percent a year later as lenders withdrew low-deposit deals amidst economic uncertainties.

This scheme allowed banks to purchase insurance on 95 percent LTV mortgages to cover potential defaults. Participating banks include Barclays, Halifax, HSBC, Lloyds, NatWest, and Santander.

However, the uptake remains low, with only 38,156 out of 1.03 million first-time buyer loans approved through the program since its launch until March.

High rates on low-deposit options deter many first-time buyers, who often prefer to wait until they can provide a larger down payment. For instance, the best two-year fixed-rate for a 5 percent deposit is currently at 5.45 percent from Monmouthshire Building Society, with monthly payments on a £200,000 mortgage amounting to £1,222.

Conversely, those with a 15 percent deposit can access a better rate of 4.69 percent from NatWest, lowering their monthly repayments to £1,133 and saving £1,068 annually.

“The scheme has fostered improvements in competition and options, which are essential, but borrowers still face hurdles with affordability assessments,” noted Paul Broadhead from the Building Societies Association.