Shared Equity Schemes

by Mark Johnston

Shared equity is a type of low cost home ownership scheme run by the government to help people who can not afford to buy on the open market to purchase their own homes.

Shared equity in the UK has undergoing a mini revival and some changes have been made to the scheme. Previously this scheme was limited to specific groups such as housing association tenants and key workers such as nurses, teachers, fire-fighters and police officers. They are now open to any household with an income of less then £60,000 a year.

This scheme is particularly good for first time buyers who due to high deposit demands from lenders are struggling to get their feet onto the property market. However they are not just for first time buyers, these schemes cater for anyone who does not have a property to sell but may have owned a property before, for example people whose relationship has broken down and their partners have kept their previous house.

This scheme is a ‘nutshell’ is where a buyer’s mortgage money is topped up with a cheap or even interest free loan funded partly by the state and partly by assorted housing associations. Some home builders offer this sort of scheme but only on new built homes. Therefore with this scheme you own all of the property.

Using this scheme can give buyers a real boost on the kind of property they can buy, for example, a household with an income of say £32,000 a year could afford a £200,000 house, on which they would pay approximately £760 a month opposed to £1,350 a month with out the scheme.

Home Buy direct is one of the main shared equity schemes under the governments ‘Home Buy’ umbrella of various affordable housing products. However ‘Home Buy’ direct is for people wanting to buy a newly built house and therefore the equity provided is shared half with the government and half with a builder.

Under the governments umbrella there are also 2 different loans, the ‘Open Market ‘Home Buy’ scheme and ‘Own home’, both of these allow buyers to purchase property on the open market rather than through specific housing association homes.

With the ‘Open Market Home Buy option or as it is also known ‘My Choice Home Buy’ buyers are not tied in to a particular mortgage lender, so they can search the market for the best deals, however they will need a shared equity mortgage. Also the interest on the equity loan is currently 1.75% in the first year and then it goes up each year linked to inflation.

The ‘Own home’ option is run by housing association Places for People and the Co-operative bank which means buyers have to take out a Co-op mortgage for at least 60% but they do not pay any interest on the equity loan for the first 5 years; then they pay 1.75% a year for another 5 years.

The catch with shared equity is when buyers come to sell their homes they have to hand over part of any increase in the value to the loan, for example if a buyer has a £50,000 equity loan to cover a quarter of a £200,000 property then they sell for £300,000 they would hand over a quarter of the new value £7

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