Shared Equity Mortgages 2024

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Key Points

• A shared equity mortgage helps people get on the property ladder who normally wouldn’t be able to afford the deposit.
• If you have a shared equity mortgage, you will own your property.
• There’s several different shared equity mortgages available, not just the government Help to Buy scheme.
• You’ll pay a minimum deposit of 5% of the property purchase price, and a mortgage repayment of at least 25% of the property purchase price.
• An equity loan can cover between 5% and 20% of the property purchase price.
• A shared equity mortgage is not the same as a shared ownership mortgage.

What Is a Shared Equity Mortgage?

Shared equity mortgages allow people who cannot afford to buy a property outright get on the property ladder. The shared equity mortgage scheme is based on an individual taking out a loan which will provide part of the deposit for a property.

You will technically have two loans as the equity loan will help you to secure a mortgage for your property. Shared equity mortgages are especially beneficial for people who are struggling to raise enough funds for a deposit to qualify for a mortgage.

Do I Own My Property With a Shared Equity Mortgage?

Yes, you do legally own your property if you have a shared equity mortgage. With a shared equity mortgage, you’ll be able to get onto the housing ladder without needing a large deposit.

Am I Eligible for a Shared Equity Mortgage?

In order to be eligible to receive a shared equity mortgage in England under the Help to Buy scheme, you are required to:

• Be a first-time buyer who is at least 18 years of age.
• Be able to afford the repayments.
• Earn a household income of less than £60,000.
• Not have owned any residential land or home in the UK or abroad.
• Never have received any form of Sharia mortgage finance.

The property for which you’ll sue your shared equity mortgage for must be a new-build that hasn’t been lived in by anyone before you buy it, be sold by a registered Help to Buy homebuilder, and be the only property that you own and live in.

There’s also a maximum property purchase price that changes depending on the region of England you’re in. You can see the eligibility criteria for Scotland and Wales through the government site.

How Does a Shared Equity Mortgage Work?

A shared equity mortgage works by paying a minimum deposit of 5% of the property purchase price. You’ll also arrange a repayment mortgage of at least 25% of the property purchase price.

You can then borrow an equity loan to cover between 5% and 20% (most of the time) of the property purchase price of the newly-built property. If the property is in London, you can borrow up to 40%. The equity loan percentage you borrow is also used to calculate your interest and equity loan repayments.

You’ll either pay back the equity loan in scheduled instalments, or when you come to sell the property. As the equity loan you took out is tied to the property (as a percentage), the actual amount will fluctuate – if your property grows in value, the amount you owe will also grow.

How Much Interest Will I Be Charged on a Shared Equity Mortgage?

For the government’s Help to Buy scheme in England, you will not be charged interest for the first five years of your shared equity mortgage. From the sixth year, you’ll be charged annual interest at 1.75%.

This interest rate will be applied to the amount you originally borrowed in order to secure a shared equity mortgage. This annual interest will be spread over the year in monthly payments for you to make.

Should I Get a Shared Equity Mortgage?

It’s really important to consider all of your options before taking out any kind of mortgage. Make sure you’ve considered similar schemes such as Shared Ownership Mortgages and Joint Mortgages. We’ve outlined the main benefits and drawbacks of shared equity mortgages:

Advantages of Shared Equity Mortgages

• Buy Your First Home Sooner – Without a shared equity mortgage, it can take many years to save up to get your first home as the deposit required is much larger.
• Get an Interest-Free Loan – In most cases, the amount you pay back is based on the value of the property, so it does not accrue interest. When interest is payable, you usually have several years before you have to pay – 5 with the Help to Buy Scheme.
• Only Pay Back When You Sell – Many schemes only require you to pay back the loan when you come to sell your property.

Disadvantages of Shared Equity Mortgages

• Difficulty Remortgaging – Some lenders will not consider a remortgage application if you have not paid off the equity loan.
• Possibility of Not Buying Your Ideal Home – As you must buy a new-build, your property options will be limited.
• You Could Owe Much More – If your property value increases, so will your equity loan. There’s a chance you could end up owing more than if you’d have saved the additional money for a deposit originally.

Can I Staircase With a Shared Equity Mortgage?

Yes, you can staircase with a shared equity mortgage.

Usually, you are able to pay off up to 10% of the loan each year after the first year. This reduces the amount you owe as well as what you’ll have to pay in interest.

What Is the Difference Between Shared Equity and Shared Ownership?

With shared equity, you own the whole property, whereas with shared ownership, you own a portion of the property with a chance to buy more. Although you’ll own the property with shared equity, you’ll have a loan on part of your deposit.

How Much Can I Borrow With a Shared Equity Mortgage?

Usually, you can borrow between 5% and 25% of a property’s value through shared equity.

Individual lenders will have their own criteria for how much they will let you borrow with a shared equity mortgage. Some schemes have an upper property purchase price limit. For example, the government’s Help to Buy Scheme has an upper house value limit of £600,000 for properties in London.

How Can I Get a Shared Equity Mortgage?

Lending Expert takes the hassle away from trying to find a shared equity mortgage by matching your needs to a lender who is likely to accept you. We have access to over 1,000 mortgage deals and have years of experience.

Our eligibility checker is free to use and provides you with an indicative quote with no obligation. Get in touch with our experts to find the best shared equity mortgage for your individual circumstances.