Shared equity What is shared equity?
Understand what shared equity is, the pros and cons of a shared equity loan, plus where to get advice on shared equity mortgages.
Shared equity schemes enable you to take out a loan which you add to your deposit when buying a property. You then take out a mortgage on the remainder of the property price.
This means that you can potentially buy a property earlier than you otherwise would have done, as your deposit size will be boosted.
Unlike , buying a home with a shared equity loan means that you own 100% of the property.
Shared equity schemes
If you're interested in shared equity, your first port of call should be to look into Help to Buy equity loans.
Help to Buy equity loans are the most common shared equity scheme at the moment. To take one out, you need a deposit of 5% and can then borrow up to 20% extra from the government, meaning you'd only need a mortgage of 75%.
If you wanted to buy a home using a 5% deposit but didn't take out a shared equity loan, you'd need to get a 95% mortgage. These are harder to come by and usually come with higher interest rates.
To qualify for a Help to Buy equity loan, you need to be buying a new-build home worth £600,000 or under. The scheme is available to both first-time buyers and existing property owners, as long as you're intending the property to be your main residence (rather than a holiday home or buy-to-let investment).
Find out more: Help to Buy equity loans
Other shared equity schemes
Help to Buy isn't your only option: some developers offer their own shared equity schemes. Be very careful and always read the small print as terms can vary widely between different lenders.
Where can I get a shared equity mortgage?
Not all lenders offer mortgages to homebuyers using shared equity loans.
We would advise talking to a whole-of-market, impartial mortgage adviser to understand which lenders to approach and the best options for your personal circumstances.
- You can call Which? Mortgage Advisers, Which?'s independent mortgage service, for a free initial consultation on 0808 252 7987.
Shared equity pros and cons
Shared equity schemes sound great but they do have their drawbacks, too. It's important to weigh up the pros with the cons before making a decision.
Shared equity advantages
- You can buy a house after saving a deposit of just 5%, meaning you can potentially get on the ladder earlier than you might otherwise do.
- In a market where prices are rising, this means you can buy before saving up a big enough deposit becomes even more difficult.
- Getting a loan to boost the size of your deposit means you're more likely to be offered a mortgage.
- A bigger deposit also often means that you'll be offered better deals by mortgage lenders.
Shared equity disadvantages
- If house prices rise the size of your loan will also increase, as it's based on a percentage of the property's value rather than the amount of money you originally borrowed.
- You'll have to start paying interest on your Help to Buy equity loan after the first five years - read our guide to Help to Buy equity loans to find out more.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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