Shared Equity Mortgage schemes explained, plus our available help!
Shared Equity Mortgage schemes have been designed to assist 'cash-strapped' first-time buyers get onto the housing ladder.
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Here we take a closer look at Shared Equity Mortgages and explain how Shared Equity schemes work. We also provide information and details as to how we can help!
Table of Contents:
What is Shared Equity? Shared Equity Mortgages explained!
Shared Equity Mortgage schemes have been developed to provide assistance for 'cash-strapped' first time home buyers trying to get on the property ladder. They help buyers who cannot afford the full cost of a new home, simply by taking a share of the property.
Share Equity schemes are usually operated by one of the following schemes:
- A Mortgage Lenders, for example a bank or building society
- A Registered Social Landlords (RSL) such as a Housing Association, or
- In partnership with the private market, for example a Builder scheme.
Why is Shared Equity needed?
The cost of buying a first home has risen way beyond the means of more and more first-time buyers, and this has been largely responsible for the present affordability crisis that is firmly inherent in today's housing marketplace.
The problem is no longer restricted to certain isolated high-priced pockets. Nowadays entire regions of the country are severely affected as property prices have continued to boom by ten and twenty percent, or more, annually. Salaries on the other hand have risen only by 3% or so a year.
The result is that house prices in many areas start at £150,000 plus. And so first-time buyers cannot afford either a deposit, or the mortgage payments!
How does Shared Equity work?
With a Shared Equity scheme, the purchase buys a property as normal, but with one exception - they don't buy all of it! The scheme actually works by the customer buying a large percentage of the property, usually between 75% and 95% of the market value.
However, unlike its Shared Ownership counterpart, the borrower does not pay rent on the remaining proportion of the property. Instead, the Builder, or Housing Association retains their stake in the property until it is sold. This is usually beneficial to both parties:
- The borrower gets on the housing ladder, and pays a reduced mortgage cost, although sacrifices between 5% and 25% of the property value on sale.
- Although the Builder (or Housing Association) does not receive any rent from their stake in the property, it will benefit from any equity gain when the property is eventually sold.
Many of the Shared Equity plans offered by Lenders are usually a little different from those arranged by Builders or Housing Associations. With the Lender Shared Equity Plan, the buyer selects a portion of the property between 15% and 35% of the market value that will be subject to an equity share arrangement. The twist this time is the borrower will actually pay towards the cost of that borrowing, but generally at a heavily subsidised fixed rate. The sacrifice for this will be for the lender to take between 15% and 35% share in the property appreciation on eventual sale.
So for example, if a customer used this type of Lender Shared Equity Plan, on a property with a purchase price of (say) £100,000, and elected to have a 30% Equity Share, this portion of their borrowings would be fixed at (say) 2.99% for the term of the loan. On sale of the property, let's assume that the property has increased by (say) £20,000, the lender would take a 30% share of the property increase, that is 30% x £20,000 = £6,000.
Thus using the Lender's Equity Share plan has enabled the borrower to get on the housing ladder by offering an affordable repayment structure by use of the heavily subsidised portion of the purchase price which the borrower can select at between 15% and 35%. Their sacrifice is to share, in our example, 30% of the sale price, amounting to £6,000. The buyer retains 7)% of the uplift, that is £14,000, which can then be used as a deposit for their next property.
Can Shire Direct help me obtain a Shared Equity Mortgage?
Yes, absolutely!
Here at Shire Direct our professionally qualified mortgage advisors are available to discuss the options open to you, on Freephone 08000 282 281 (from 8am until 10pm, 7 days a week). Alternatively you can enquire online at any time. We'll carefully assess your circumstances, needs, requirements and aspirations and come up with the most appropriate solution for you.
You'll find our service to be friendly, yet professional, helpful and accommodating.
So, please don't hesitate to contact us if you would like to discuss your requirements, obviously without obligation! Our mortgage advisors are available up to 10.00pm everyday, and we'll be delighted to provide you with an in-principle decision - whatever your requirements.
Well, that's Shared Equity and Shared Equity Mortgage Schemes explained. We hope we've been able to shed some light on the subject for you and we hope we can be of further assistance! Don't forget we're only ever a couple of mouse clicks or a free telephone call away and would love to hear from you!
The overall cost for comparison is 9.8% APR.
The actual rate available will depend upon your circumstances. Ask for a personalised illustration. APR variable and based on a usual case. Most customers are likely to receive a lower rate or the same rate as our overall cost for comparison rate - learn more about APR.
There are no upfront broker fees.
However, a fee may be charged on successful completion. An indication is that on conforming cases (straightforward applications with no or minimal adverse credit) a fee may be charged of up to 1% of the amount advanced, typically £795 and will depend on your circumstances.
For non-conforming cases (where case research and processing may be more complex due to adverse credit or unusual circumstances), a fee may be charged of up to 3% of the amount advanced, typically £1,995.
THINK CAREFULLY BEFORE
SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED
IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Adding existing debt to your mortgage will increase the repayment term and overall cost.
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