Shared Equity Mortgages

Shared Equity Mortgages are part of the government Open Market HomeBuy Scheme.

A Shared Equity Mortgage is offered to key workers, first-time buyers with household incomes of under £60,000 and other selected home buyers.

Although a shared equity mortgage indicates that equity in the property is shared, the buyer does not initially share the equity with any other party.

However, when it comes to selling the property, buyers with a Shared Equity Mortgage will have to forfeit part of the equity share in the property.

Shared Equity Mortgages sound attractive, what do they actually mean?

Under the Government Open Market HomeBuy initiative, selected borrowers (usually first-time buyers or key workers) have access to an equity loan of up to 50 per cent of property value.

The rest of the equity in the property is borrowed from a mortgage lender, either independently or as part of the scheme. For first-time buyers and key workers, shared equity mortgages allow the purchase of a property without the need for a large deposit.

Under a Shared Equity Mortgage, does someone else own a percentage of my house?

No, with a Shared Equity Mortgage, the buyer does not own the property with anyone else.

The buyer has taken out more than one loan for the property – a mortgage and an ‘equity loan.’ This means that the buyer is the only person on the deeds, but he/she/they are also liable for the debt.

When the property is sold, the buyer must repay the loans plus a proportion of any increase in equity to the lender.

I am a first-time buyer/key worker, will I be eligible for a Shared Equity Mortgage?

Shared Equity Mortgages are available for key public sector workers throughout the country. Furthermore, social tenants and those people on council waiting lists are eligible for the scheme. Priority first-time buyers, who are selected by regional housing boards and local HomeBuy agents, are also eligible for Shared Equity Mortgages.

I’ve found a property on the open market, can I get a Shared Equity Mortgage?

Shared Equity Mortgages are available for properties on the open market, provided the buyer is eligible for the initiative.

What are the options when it comes to Shared Equity Mortgages?

Two government Shared Equity Mortgage schemes are available.

These include:

Ownhome and
MyChoice HomeBuy.

MyChoice HomeBuy gives the buyer the option of taking out an equity loan between 15-50 per cent of property price, funded by the government and housing associations. The buyer can then choose a mortgage from anywhere in the market.

Ownhome, the other shared equity mortgage initiative, is run by housing association Places for People in conjunction with the Co-Operative Bank. In this instance, the equity loan is between 20 and 40 per cent, and the remaining 60 per cent can be chosen from the Co-Operative Bank product range. Buyers pay no interest on the equity loan for the first five years, 1.75 per cent for the next five years, and 3.75 per cent after that.

Do Shared Equity Mortgages make a real difference?

According to government statistics calculated on a repayment mortgage charging 6.5 per cent, a Shared Equity Mortgage could give a household with an income of £32,000 the ability to purchase a £200,000 property. They would pay £760 per month under the scheme, as opposed to £1,350 without.

What does the loan part of Shared Equity Mortgages mean?

The loan aspect of a shared equity mortgage is an equity loan. This functions as a deposit, up to 50 per cent of the value of the property. This puts the buyer in a much more powerful position to purchase a property, giving access to a wider variety of mortgage loans.

Do Shared Equity Mortgages include a grant?

The government provides grants of £1,500 cash to some shared equity borrowers to help with the costs of buying a property.

What’s the catch with Shared Equity Mortgages?

Shared Equity Mortgages are a great product to help buyers get on the ladder. However, the catch with shared equity loans is that when it comes to selling the house, the buyer has to part with a proportion of any increase in value to the loan provider. Therefore, if a borrower took a £50,000 equity loan on a £200,000 house, then sold the house for £300,000, they would have to part with £75,000.

Shared Ownership News