What is shared equity?
Shared equity comes in the form of schemes which are basically when lenders agree to give you a loan alongside your main mortgage in return for a share of any profits you receive when you sell your house or repay the loan. You will still need to take out a mortgage on the remainder of the property price but because the loan acts as deposit for the property, getting a mortgage after that becomes easier.
The term ‘shared equity‘ confuses some people into thinking that you are sharing the purchase of your property with someone else but this is not the case. Your home belongs to you and legally, you own 100% of the property. The shared equity part relates to the loan you have taken out as a deposit.
Shared equity schemes
If you are interested in a shared equity scheme your first step should be to to check out the governments Help to Buy scheme. This was announced in 2013 and is and is an expansion on its predecessor Firstbuy.
The Help to Buy scheme allows first-time buyers and home movers alike to put down a 5% deposit on a new-build home worth up to £600,000, with up to 20% of the cost of the property covered by a shared equity loan. It’s important to remember that the value of the loan is linked to the property that you have bought so if the value of the property rises over time, so will the the amount of the loan money you have to pay back.
Help to buy allows you to repay the loan at any time during the term of the mortgage or when you sell the property.
There is no interest charged on the equity loan in the first five years, but after that you pay a fee of 1.75% on the loan, rising each year by the retail price index (RPI) plus 1%.
In order to qualify for the Help to Buy shared equity scheme, you must have a household income of less than £60,000 and not be able to buy a home outright. You will need to have a 5% deposit and a good credit history so that you’ll qualify for a mortgage. This scheme cannot be used if you intend to rent the house out.
As well as the help to buy scheme, the government has a few other schemes that may help people become homeowners and these are:
Shared ownership is designed for people who would find it difficult to buy a property outright. It is a way of part owning – part renting a property. Shared ownership properties are sold through housing associations. You buy a share of the property (between 25% to 75%) of the home’s value and then pay rent on the remaining share. The rent you pay can be up to 3% of the association’s share of the property’s value.
According to estate agents Savills, over the last two years, shared ownership has delivered additional housing for nearly 3% of the demand not met by the unassisted for-sale market and demand for shared ownership is greatest where affordability is most stretched.
The table below shows figures for shared ownership and staircasing volumes over the last last decade.
Right to Buy
The Right to Buy scheme is a policy in the United Kingdom which gives secure tenants of councils and some housing associations the legal right to buy, at a large discount, the home they are living in.
Where can I get a shared equity mortgage?
As the scheme is a little different to the standard mortgage not all lenders cater for people looking for a mortgage using the shared equity scheme. Be sure to do your research and read any small print thoroughly before agreeing to any mortgage.
One website which offers and compares shared equity mortgages is Sharetobuy. Simply fill in the form with the necessary information to get started. Sharetobuy can also be used to learn more about shared ownership if you feel you want to expand your knowledge on it further.