Shared Equity in the UK offers the boost that a first-time homebuyer is looking to get onto the property ladder. It works by providing the buyer with a loan, forming part of the deposit for the property they want to buy. Then, they take out a shared equity mortgage on the remaining part of the home’s value.
In this blog, let’s look closer at exactly how Shared Equity in the UK works, its pros and cons, and how it is different from Shared Ownership in the UK.
How Shared Equity in The UK Works
Unlike the name ‘shared equity’ suggests, the property you will purchase through this scheme will belong entirely to you. You are actually taking out an equity loan which counts towards your initial deposit, a bigger deposit than the one you can afford otherwise. This bigger deposit then enables you to qualify for a cheaper mortgage.
Eligibility Criteria
The eligibility criteria of the Government’s Shared Equity Loan Scheme is as follows:
● You must be in England. Although similar schemes operate in Wales and Scotland too.
● It is available for both first-time home buyers and home movers alike
● You need to put down a 5% cash initial deposit on a new-build residential property worth up to £600,000.
● Up to 20% (40% in London) of the cost of the property can be covered by a shared equity loan.
● The first five years are interest-free, but later you have to pay a fee of 1.75% of the loan’s value, which increases every year.
You require a good credit history.
Advantages
The biggest advantage of Shared Equity in the UK is that anyone can get on the property ladder with a 5% deposit.
Drawbacks
The biggest drawback of Shared Equity in the UK is that if over the next few years your property prices shoot up, the size of your loan will exponentially increase too and you will end up paying more under this scheme, than if you get a standard mortgage by saving up a bigger deposit.
It might also run you into problems while trying to remortgage if you have a Shared Equity loan in place since a very small number of lenders offer remortgage products in such schemes.
Difference Between Shared Ownership And Shared Equity
Shared Equity and Shared Ownership schemes are different. With a Shared Equity, you own the entire property, while having a loan on a part of your deposit. Whereas in Shared Ownership you only own a portion of your property with the option to ‘staircase’ and eventually own the entire home. You can read more about Shared Ownership in the UK here.
The Tenant-Buyer Scheme offered by Prysm Property has the additional advantage of allowing you to purchase a property with as low as a 3% deposit. There is no equity loan and the terms of the contract (purchase price and monthly rent) are fixed from the start, so you will remain unaffected by rising property/rental prices. You also have the opportunity to start building equity before you’ve even completed the purchase of your home.
Follow the link to learn more about Tenant-buyer Scheme And How Does It Work.
