Shared Equity scheme
How shared equity deals work?
Dependent on the individual scheme, the developer, the local authority or the government would give you an equity loan to count towards your deposit. For example, they would offer a loan of 20% of the purchase price. This loan, in addition to your deposit and mortgage, could make a property affordable.
The buyer may be granted a few years interest free, and there may be rules stipulating when this equity loan has to be paid off. It is important that you are clear about these terms and conditions before signing any contracts.
Examples of shared equity
Currently, the most notable example of a shared equity scheme is the Help to Buy scheme. Under this scheme, the government agency (your local Help to Buy Agent) manages the shared equity loan, which is maximum 20% of the property value outside London and up to 40% within London.
However, local and national developers also often offer their own version to help buyers, so it is worth enquiring about it when considering a new build home.
Repayment of the shared equity loan
Unless the equity loan has been settled by the time the property is sold, the loan provider would get the value of their share from the sale price. As the equity loan is a percentage of the property value, the loan provider hopes that the property value increases and they get more money than the original loan amount. It is important to note, however, that should property prices fall below the purchase price, the loan amount will not reduce below the original level. In addition, you may also be liable to pay an amount of interest on top of the equity loan amount.
What is the difference between shared equity and shared ownership?
- Shared equity is only a loan facility to increase your deposit, but you own all of the property. On the other hand, shared ownership literally means that the ownership is shared between you and the housing association.
- You pay interest on the shared equity loan and at some point, it has to be repaid in full. In contrast, you pay rent based on the unbought share in case of shared ownership and you are under no obligation to buy the housing association’s share.
- However, you can make changes in both cases, i.e. repay the equity loan in full or buy the housing association’s share once your income or savings enable you to do so.
Many lenders can offer a mortgage for shared equity transactions, whether it’s a developer, local authority or Help to Buy government scheme. Please do not hesitate to contact us for further information and to check if it is a suitable option for you.