Shared equity is a relatively new way of structuring finances in order to afford your first home.
Shared equity requires a first time buyer to take out a mortgage for part of the property and then also take out a lower cost or free top up loan or equity loan to fund the majority of the rest.
In return for borrowing both the mortgage and equity loan to afford that property the lenders will require a proportion of any increase in equity/value of that property when you come to sell it. Hence the name shared equity.
The Open Market HomeBuy shared equity initiative allows the qualifying buyer to choose any property on the open market within their price range. It is available to key public sector workers, social tenants or those on a council waiting list and other priority first time buyers (as deemed by the regional housing board and communicated through the local HomeBuy agent). This includes first time buyers with an anual household income of £60,000 or less.
With shared equity, the first time buyer does not own the property in conjunction with any other party (unlike shared ownership) but takes out more than one loan for the property. A mortgage and an ‘equity loan'. You are the only person on the deeds. There is no co-owner. However, when the property is sold, the ‘first time buyer' has to repay the loans AND a proportion of any increase in equity of the property to the party making the ‘equity loan'.
The two main elements of the Open Market HomeBuy initiative offer key workers and other first time buyers access to an equity loan of up to 50% of the property's value. Eligible
applicants have a choice between finding their own mortgage or picking a competitive deal through The Co-Operative Bank. These new services replace the former Open Market HomeBuy shared equity schemes.
Ownhome
is provided by a partnership between Places for People and The Co-operative Bank. Ownhome gives people the chance to take up to 40% of the value of the property in an equity loan from Places for People. They would pay nothing at all for the first five yearson the equity loan. After these five years, a low rate would be paid on the sum – starting at a fixed rate of just 1.75% interest per year for the next five years, and then increasing to 3.75% interest per year from year eleven. The remainder would be funded through a conventional mortgage with The Co-operative Bank. There will be no premium or extra charges on the mortgage, and customers can choose from a range of competitive deals including fixed rate and tracker options. Customers can apply for Ownhome through their local HomeBuy Agent, or directly on the Ownhome telephone line 0845 607 0110.
MyChoice HomeBuy enables applicants to apply for a mortgage with any lender they choose. The scheme would provide them with up to 50% of the value of the property as an equity loan. The remainder would be funded through a conventional mortgage with a Financial Services Authority regulated lender. They would pay a lowrate of 1.75% per annum on the equity loan funded by one of eight housing associations who are acting as equity loan providers*. The rate they pay on the standard mortgage would depend on the deal selected through the mortgage providers.
With both products, no deposit is required, but is allowed. When the property is sold, the equity loan provider will be entitled to a share of any increase in the value of the property.
Although mortgage rates are still low, rising house prices and the decline of first time buyer-specific mortgages has put pressure on people buying their first home – particularly key workers.
This means a household with an income of £32,000 could afford a house of £200,000, paying £760 each month – as opposed to £1,350 without the scheme.
A grant of £1500 is also available to cover buying and moving costs.
Applicants will need to contact their HomeBuy agent - a one-stop-shop providing affordable housing options across the UK - or phone the Ownhome information line on 0845 607 011
Contact your local HomeBuy Agent via the Housing Corporation.
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