Is shared equity a good idea?
With mortgage products having been in such short supply and many would be home owners having found themselves in the frustrating position of not being able to save for or afford inflated deposits, one option that has been growing in popularity is that of shared equity.
I mention this particularly because of the number of developments in Cardiff and the surrounding areas that I now notice are offering this as an option.
Traditionally you would have looked to local councils and housing associations to offer such schemes but increasingly, private developers have come on board as they’ve witnessed an increase in demand.
Shared equity is similar to shared ownership in that it’s a way of making housing more affordable.
The main difference is that with shared ownership you own only a specific share of a property to start (usually somewhere between 25-75%) and then pay a discounted ‘rent’ on the rest to the owners, increasing your shares incrementally as you can afford to – this is commonly referred to as ‘staircasing’.
With shared equity, you generally purchase all of the property from the beginning, using what is known as an ‘equity share loan’ to make up the difference between the mortgage that has been agreed and the actual purchase price. In effect, this loan acts as the deposit.
So, you own the property from the outset and will be required to pay back the amount borrowed to whoever it is that you’ve made the original agreement (eg the developer), either on resale or after a set period of time laid out in their terms and conditions.
Shared equity purchasers do require a specific type of mortgage so you will have to shop around but rates tend to be slightly better on shared equity mortgages than on the loans associated with shared ownership and your own deposit contribution can be as small as 5%, whereas the standard minimum for shared ownership is double that.
That said, although the rates are better, the actual mortgage is likely to initially be much larger as your original share in the property will likely be more in the region of 70% as opposed to something like 25%.
Also, it’s worth bearing in mind that if applicable, with shared equity you will have to pay stamp duty on the whole property as that is what you’re buying, whereas you’re unlikely to be affected by the stamp duty threshold with shared ownership.
We’re still a little up in the air as to what house prices are set to do in the coming months – and even years – so if you’re really determined to get onto the property ladder but don’t quite have the means independently then a shared equity or ownership scheme might be the way forward. There could be some good opportunities but I’d advise a fair amount of research in order to make sure the deal is definitely the right one for you.
Tags: hern & crabtree, nigel john, shared equity
