What is a Shared Equity Mortgage?

This is a mortgage where a certain percentage of the value or equity in the property is retained by the developer of the property in the form of a second charge, allowing the borrower to get a mortgage on the balance of the equity.

Depending on the scheme, the amount of equity owned by the developer may or may not be interest free to the borrower. By retaining a stake in the property, the developer would benefit from any house price appreciation, whilst the borrower benefits by having a reduced mortgage to pay.

An alternative form of a Shared equity mortgage is a Shared ownership mortgage. Also known as a Let to buy mortgage, where only part or percentage of the property is bought with a mortgage by the borrower and the remaining balance of the property is bought and owned by a Housing Association or Local Authority who then rents this part out to the borrower. As the total monthly payments to the borrower are often less than they would be for an equivalent mortgage on the whole property, it is a low cost start for a borrower acquiring a property.

A more recent development is the Open Market HomeBuy scheme sponsored by the government, which combines elements of both the Shared equity and Shared ownership schemes. This scheme involves borrowing money from a mortgage lender (who provides both a standard mortgage and an equity loan) and a HomeBuy agent (who provides another equity loan). The borrower therefore has three loans secured on the property. The HomeBuy agent manages the money that the government introduces into the scheme. 

 

Types of Borrower

These forms of mortgages are primarily designed for first time buyers, or home movers on low incomes.

 

Reasons for Mortgaging

You could be borrowing money to purchase your first property or a key worker simply moving to a new location, where outright purchase with a mortgage is outside your current income.

 

Types of Mortgage Repayment Methods

When you take out a mortgage or loan, you will need to have agreed with the lender how you are going to repay it.

As a borrower you have two main options when considering the method of repaying the loan. Over the term of the loan, you can make monthly repayments consisting partly of capital and partly of interest – i.e. Capital repayment mortgage or you can pay interest only every month, leaving the capital to be repaid at the end of the loan term.

 

How do I get a Shared equity or Shared ownership Mortgage?

The first and most important step after you have decided you may want this type of mortgage is to have a discussion with us to provide you with independent financial advice.

Once we have agreed what the most suitable mortgage is for your particular circumstances we make an application on your behalf to take out a loan based on how much you can afford and the value of the property, for a length of time agreed between you and the lender.

 

Want to know more?

Talk to one of our qualified financial advisers on 01553 777600 or e-mail us at enquiries@ringassociates.co.uk

Also you may want to read the free download publication from the Financial Services Authority titled ‘Helping you choose the right mortgage’ by accessing the following website www.moneymadeclear.fsa.gov.uk

For information on ‘Open Market HomeBuy Schemes’ you can download the free publication at              www.moneymadeclear.fsa.gov.uk/pdfs/open_market_homebuy.pdf

To find out more about home ownership schemes available in your community you may want to access the following government agency at http://communities.gov.uk/index.asp?id=1151220