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MORTGAGES

Shared Equity & Shared Ownership Mortgages

Shared Equity & Help to Buy

Shared equity is a form of mortgage scheme that helps first time buyers get on the property ladder. A good example of this is the “Help to Buy” scheme. In certain instances, it can also help home movers’ move to a larger more expensive property.

Normally with a shared equity scheme the buyer only has to put down a small deposit, usually 5%. The government then tops this up to potentially 25% of the purchase price, with a low or no cost equity loan, with the balance paid by a mortgage. Having a larger deposit should enable you to obtain a better rate which you otherwise wouldn’t be able to qualify for.

At the end of the mortgage term, you will be required to pay off the equity loan in full. The loan will be proportionate to the value of the property at the end of the term which means you could be paying back significantly more than you borrowed.

Pros of Shared Equity

  • Access the housing market with a small deposit
  • Makes a mortgage more accessible
  • Potentially better deals available
  • It’s possible to buy more house than you might have been able to afford

Cons of Shared Equity

  • It can sometimes be difficult to remortgage
  • If the value of the property increases, you might have to pay back more on the loan than if you took a traditional mortgage
  • You might be tempted to buy a house for more than you can realistically afford. Just because you can afford more, doesn’t mean you should

Shared Ownership

Similar to shared equity, shared ownership is a form of mortgage that helps first time buyers access the property market. First time buyers usually enter into a shared ownership arrangement with a housing association or similar organisation, paying rent to them for the part of the property they retain ownership of.

An example of this being that you purchase 40% of the property value and take a mortgage for this portion minus a small deposit – typically 5% or 10% of your share. For the remaining 60% of the value, you pay rent to the local housing association. The rent on a shared ownership home is usually set at around 3% per annum of the unsold equity. So for example, if the property is worth £100,000 and the landlord’s share is 60%, that would equate to: 3% of £60,000 = £1,800 per annum or £150 per month.

Pros of Shared Ownership

  • Shared ownership allows you to get on the property ladder as an owner-occupier, offering long-term stability without overstretching yourself
  • Deposits are generally smaller than buying on the open market
  • Shared ownership can make mortgages more accessible, even if you are on a lower wage
  • Your mortgage repayments can often work out cheaper than if you had a traditional mortgage
  • You have the option to buy more shares of your home in the future via a process known as “staircasing”. In most cases, purchasers can “staircase” all the way to 100%. In which case they no longer need to pay rent, just their mortgage along with any relevant service charge or ground rent

Cons of Shared Ownership

  • Not all lenders offer mortgages for shared ownership
  • All properties are leasehold only. However, some homes can potentially become freehold after staircasing to 100%. This needs prior agreement from the landlord
  • You have to pay 100% of the ground rent and service charge on the property, no matter what % your share is
  • There maybe restrictions on any improvement that you might want to make to the property. You will in all probability need to obtain prior permission from the landlord

ANY PROPERTY USED AS SECURITY, INCLUDING YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. COMMERCIAL MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY OR THE PRUDENTIAL REGULATION AUTHORITY.

To speak to one of our experienced mortgage advisers today about shared equity or shared ownership mortgages

Call FFP today on

01745 530020

or fill out the Contact Us form.

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