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Shared equity and shared ownership

What is shared equity and shared ownership?

Not having a big enough deposit continues to be the main barrier stopping people from buying their first home.

Both shared Equity and shared ownership schemes aim to make home ownership more affordable for people without substantial savings.

These schemes are an alternative for people who aren’t able to get first-time buyer help from parents or able to access 95% or 100% mortgages.

In this guide, find out how the two schemes work, and whether or not they are right for you.

What is shared equity?

Shared equity schemes offer homebuyers with small deposits a way of boosting how much they put down to buy a property by taking on a loan.

With a bigger mortgage deposit, you can increase your chances of getting a good mortgage deal, as you’re borrowing a lower proportion of the property’s value.

There are both government-backed schemes and also private sector schemes.

Government-backed shared equity – Help to Buy

The government-backed scheme is called the Help to Buy equity loan scheme.

The government lends you up to 20% of the purchase price of the property – all you need is a deposit of at least 5%.

The loan is interest-free for the first five years, after which time you must start paying off the interest on the loan. It must be repaid in full after 25 years or, if you sell your home before then, the value of the loan would be deducted from the sale price.

You can also opt to repay the loan early by making repayments in chunks of 10% or more at a time.

When you repay the loan you will repay the market value at the time, not a fixed cash amount. For example, if you borrowed £30,000 to buy a house worth £150,000, but when you came to sell the house it was worth £200,000 you would repay 20% of the property’s current value, so you would repay £40,000.

Similarly, if the property dropped in value you would repay less than you initially borrowed.

Find out the full details in our Help to Buy mortgages guide.

Private sector shared equity

Private sector equity loan schemes work in a very similar way but there will be differences such as who legally owns the home, when you have to pay the loan back and how big a share the lender gets when you sell the home.

If you are thinking of taking an equity loan, make sure you do research and shop around to make sure you are getting a good deal.

What is shared ownership?

With shared ownership, you part-buy and part-rent a home from a housing association, allowing you to take out a much smaller mortgage than if you were buying the whole property.

Using shared ownership, you purchase a share of between 25% and 75% of a property from a housing association. You then pay rent of up to 3% on the remaining share.

For example, if you bought 50% of a £100,000 flat, the housing association could charge you up to £155 a month on their share.

If you had a 5% deposit, or £5,000, you’d need to get a mortgage for £45,000 and make repayments on that amount.

If you wish, you can then gradually increase your share of the property until you own it outright – a process called staircasing. You can either pay for the extra share in cash or arrange additional mortgage lending to cover the cost.

You can find out more in the Which? guide to shared ownership.

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