Shared Equity and Shared Ownership
Not having a big enough deposit continues to be the main barrier stopping people from buying their first home. Both Shared Equity and Shared Ownership schemes aim to make home ownership more affordable for people without substantial savings.
Shared equity schemes work by you receiving an equity loan to put towards buying a property. It can be a quick way to boost the size of your deposit and increase your chances of getting a good mortgage deal. There are both government-backed schemes and also private sector schemes.
With a government-backed scheme the equity loan comes from the government and house builders and they will lend up to 20% of the purchase price, depending on the particular scheme you apply through. But you must already have a deposit of at least 5%, so it is not suitable for anyone with no savings at all. Read more about the government’s help to buy scheme.
Although you would legally own 100% of your home you would still be obliged repay the loan at some stage. Unlike a mortgage, you would not need to make regular repayments but you would need to repay it in full after 25 years or if you sell your home before then, the value of the loan would be deducted from the sale price. You can also opt to repay the loan early by making repayments in chunks of 10% or more at a time.
For the first five years the loan is interest free, but from year six onwards you have to pay monthly fees which start at 1.75% and then increase every year by inflation +1%. These fees do not count towards what you owe on the equity loan so it’s important to factor in this additional cost when weighing up whether shared equity is right for you.
Private sector equity loan schemes work in a very similar way but there will be differences such as who legally owns the home, when you have to pay the loan back and how big a share the lender gets when you sell the home. If you are thinking of taking an equity loan with make sure you do research and shop around to make sure you are getting a good deal.
With Shared Ownership, you part-buy and part-rent a home from a housing association which means you would need a much smaller mortgage than if you were buying the whole property. You can purchase a share of between 25% and 75% from a housing association and they would then charge you rent of up to 3% of the share they own. So for example if you bought 50% of a £100,000 flat, the housing association could charge you up to £155 a month on their share.
Similar to shared equity, you can gradually increase your share of the property until you own it outright. You can either pay for the extra share in cash or arrange for additional mortgage lending to cover the cost.
Is Shared Equity or Shared Ownership right for me?
Any first-time buyers who have a household income of less than £60,000 and who are struggling to buy a home on the open market are eligible to apply for the government schemes but because demand is so high people like key workers (eg nurses, policemen, teachers) and social housing tenants are likely to be at the top of the pile. With private sector equity loans you will need to check with the individual lender.
You should also compare these schemes with typical first time buyer mortgage rates to see if you are getting a good deal.
Speak to a mortgage adviser
There are lots of different things to consider with these arrangements so it’s really important to get advice about whether it’s the right option for you. Our advisers will be happy to talk to you about your circumstances and see if there is a mortgage lender to match.
You can speak to a Which? mortgage adviser by calling us on 0117 981 7787 – or request a call back. Our advisers look at every mortgage from every available lender, and because they’re paid a salary – not a sales commission – you can have confidence that you’ll receive truly impartial advice.