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Shared Equity

What is Shared Ownership?

An introduction to shared equity

Shared equity is similar to shared ownership: it is a form of affordable housing to help first time buyers, key workers and other potential property owners on to the property ladder. The Government has a specific shared equity scheme of its own formerly called Homebuy Direct and now FirstBuy; both schemes are promoted under the HomeBuy brand.

Shared Equity means that you buy a given equity share in a property with the aid of a mortgage – for example 75%; however, while the developer and/or Government own the remaining share you do not pay rent on it. When the property is eventually sold the developer and/or Government will be entitled to receive their share of the value (equity) of the property.

For example, if a property was originally purchased for £100,000 and you initially raised a loan for £75,000 (therefore having a 75% share) then the developer and/or Government would own a 25% of the value of the property. Sometime later, when you wish to sell, and the property was now worth, for example £150,000, then you would receive £112,500 (75%) of the sale price, and the developer and/or Government would be entitled to receive the remaining £37,500 (25%).

FirstBuy – formerly Homebuy Direct - the main shared equity scheme
FirstBuy is the main shared equity scheme under the Government's 'HomeBuy' umbrella of various affordable housing products. Under the FirstBuy shared equity scheme you buy a new build property with an equity loan, typically for 20%, provided half and half by the Government and a Developer. There are also shared equity schemes where the Government is not involved, for example; the Developer provides the entire equity loan.

Shared Equity Mortgages
There are only a limited number of lenders in the mortgage market who will lend for this type of mortgage arrangement – some lending the full 100% of the share when the schemes first started but now the purchaser is required to contribute a minimum 5% deposit. Our Financial Advisors have access to all the mortgage lenders in the Shared Equity market, including those who will consider clients with adverse credit, and will be happy to help with these purchases. Shared Equity mortgage lenders will need to gauge that you are able to afford both the mortgage payment and the future interest payment on the equity loan when calculating your affordability.

Key Facts of Shared Equity
• You own the property and there are no rental payments
• Usually offered by your local housing association under FirstBuy (household income must be under £60,000pa) or through a house-builder ( these schemes can vary)
• You must be a first time buyer, key worker, housing association or council tenant or have an identifiable housing need
• You are normally entitled to repay all or some of the equity loan at any point but you would need to check the terms and conditions of your particular scheme
• Currently you will need at least a 5% deposit
• When you sell the property you will need to replay the equity loan remaining and a proportion of the equity growth that reflects the proportion of the equity loan remaining
• Restricted to new build properties which are lovely but command a premium
Strengths and weaknesses of Shared Equity v Shared ownership

In Shared Equity's favour:
• With lenders requesting significant deposits from First-Time-Buyers in the current financial climate, your personal deposit contribution required in a shared equity property purchase can be significantly reduced often as little as 5%.

• Mortgage rates tend to be more favourable on shared equity mortgages rather than shared ownership home loans because the lenders in a shared equity case will treat the 'loan to value' as being based on your share divided by the whole market price - so you could find yourself putting down as little as 5% of your own money as deposit but obtaining a mortgage rate based on products at 25% deposit!

Against shared equity:
• With the funding withdrawal of the Open-Market shared equity scheme, potential purchasers are restricted to new build properties. Although with shared ownership, the properties are USUALLY new builds; it is also possible to buy shared ownership properties on a second hand basis through a resale scheme when an existing owner sells their share - so potentially, shared ownership offers more choice of properties.

• Any potential purchaser is required to purchase a much larger percentage of the property under a shared equity agreement (typically 75%) compared to 25% minimum purchase with shared ownership, meaning a much greater initial financial commitment for the purchaser.

With shared equity, the purchaser does not own the property in conjunction with any other party (unlike shared ownership) but takes out more than one loan for the property. A mortgage and an ‘equity loan'. You are the only person on the deeds. There is no co-owner.

For further information on Shared Equity Mortgages and shared equity properties:
Call our local consultants today, they will be happy to advise you through each step of the purchase process and provide information all the property options available in your area.