If you are looking to buy your first home, then a shared equity scheme could help you to structure your finances and get onto the property ladder.
A shared equity mortgage is the term given to taking a mortgage out on part of your home and an equity loan or top up loan on the outstanding amount. When you sell the property, a proportion of the increase in value will be payable to both the lenders of the mortgage and the loan, which is where the term has derived the name shared equity from.
You can enter into a shared equity Open Market HomeBuy scheme, which is the same in principal but allows a qualified buyer to purchase a house available on the open market. In order to qualify for a shared equity mortgage you must be either working within the public sector, a social tenant, on a council house waiting list or another kind of priority first time buyer including those who earn a household income of £60,000 or less.
Shared equity does not work in the same way that shared ownership does, in the sense that the property is not partly owned by different parties. This is because the first time buyer takes out more than one loan for the property – usually a shared equity mortgage and an ‘equity loan’ – and there is only one person on the title deeds and therefore no co-owner.
When the property is sold the first time buyer must repay the loans and a proportion of increase in the equity of the property.
The Open Market HomeBuy scheme offers key workers and other types of first time buyers access to an equity loan of 50% of the property’s value and then they have the option to find their own mortgage or go through a mortgage broker.
An example of a
shared equity scheme allows you to take up to 40% of the value of the property in an equity loan and pay nothing for the first five years. After the five years a fixed rate of 1.75% interest will be applied each year for a further five years, which will then increase to 3.75% from year eleven. The remainder will be funded through a conventional mortgage where no premium or extra charges will be applied.
An additional
shared equity scheme enables applicants to apply for a mortgage with any lender and obtain a scheme that will provide them with 50% of the sum of the property as an equity loan. The remaining 50% will be funded through a conventional mortgage which will be regulated by the FSA and a low interest rate of 1.75% per annum will be applicable on the equity loan. The rate of the mortgage, will be completely subject to the mortgage providers.
On a shared equity mortgage there is no deposit required although it is of course allowed, and again when it is sold the provider of the equity loan will be entitled to a share of any increase in the value of the property.
If you are interested in a shared equity scheme then you should contact your local housing authority who will put you in touch with a HomeBuy agency, who will assist you with the process of finding a house and getting a shared equity mortgage.
