What is shared equity?

Brian McCarthy, Mortgage Adviser at ESPC, talks us through this topic.

In the current environment with difficulties in raising a large deposit particularly for first time buyers, shared equity offers an opportunity to get a foot on the property ladder for clients on average earnings and small deposit availability.

An explanation

Shared equity means the client owns 100% of the property but the third party equity holder retains a percentage, typically between 10% and 40% of the property value.

This is required to be repaid at some point in the future and is based on the value of the property at the time the equity is repaid. The client benefits from a smaller mortgage requirement and therefore lower monthly mortgage repayments and a smaller deposit, usually at 5% of the share.

In addition, as the lender treats the equity held by a third party as part of the deposit, much better mortgage rates can be sourced.

Arrangements

Such arrangements are available directly from a number of major builders on new build properties, but the detail does differ from builder to builder. Thus it is important to study the small print, particularly in relation to when the equity share held by the builder requires to be repaid, usually after ten years or earlier if sold.

Prior to then, such arrangements are only available on selected sites and plots, so a client needs to be happy with the location and type of property being offered.

Government scheme

The other opportunity to consider would be the LIFT scheme (Low cost Initiative for First Time Buyers). The funds are provided by the Scottish government and administered by Link Homes. There are a variety of schemes available under the Initiative. The Open Market Shared Equity Scheme can assist first time buyers and enable a client to purchase a property on the open market up to £115,000 for a one bedroomed property or £120,000 for a two bedroom property.

The third party equity holder will retain between 10% and 40% of the property value with the benefits to the client. Applications under this scheme are subject to prior approval by Link Homes and certain criteria need to be met to ensure eligibility for the applicant.

There is no time scale as to the repayment of the equity share held by the third party but it does need to be repaid when the property is sold. In addition, it is possible to increase an applicant's share to 100% over time, subject to affordability etc.

Summary

In summary, this type of arrangement can be a useful way to get a foothold on the property ladder with affordable mortgage repayments and a low deposit requirement.  Come in and speak to me if you would like to find out more about shared equity.

Want to know more?

Brian 100Brian McCarthy is a Financial Planning Consultant who aims to help those who need help finding mortgage solutions. You can call him on 07956 969 859 for more information.

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The initial consultation with an adviser is free and without obligation. Thereafter, ESPC Mortgages charges for mortgage advice are usually £350 (£295 for first-time buyers). YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED AGAINST IT.