Back in the day, “Shared Equity” was considered a little down market, perhaps where one might go as a step up from renting – a helping hand onto the housing ladder.

Nowadays, Shared Equity has undergone a face lift and is now offered by an Investment Bank as well as through your local Housing Association.

Basically, the client sticks in a 10% deposit and the investment bank adds a further 20%, leaving only 70% to be mortgaged.

This not only enable those struggling to get on the ladder to take their first steps into the housing market but also enables families to make an extra jump when moving up market.

We have also found that in areas where house prices are on the increase, some applicants are using this as an investment opportunity.

Using simple numbers, here’s how it works:

Purchase Price £100,000, Client Deposit £10,000, Equity Share £20,000 and a Mortgage of £70,000 (fixed for 3 years at 2.99%!)

The client makes his mortgage payments for 25 years (and pays nothing on the Equity Share – in return they hand over 40% of any profit at the end of the term).

At the end of 25 years, assuming the house is now worth £200,000 and all mortgage payments have been met, the house is divvied up as follows:

  Investment Bank Borrower
Deposit £0 £10,000
Equity Share £20,000 £0
Mortgage £0 £70,000 (paid down)
Share of £100,000 price increase £40,000 £60,000
Total Share £60,000 £140,000

 

Interestingly, this new twist on the traditional Shared Equity theme has proved rather popular at the upper end of the market. Many owners who are “equity rich / cash poor” have taken out their 20% equity to spend on all manner of things from school fees to Buy to Let deposits.

My verdict: for the right client – it’s worth a look!

For more information speak to a mortgage advisor on 01628 507477.

 

Recent posts

The government has announced plans to make buying or selling a home cheaper and quicker with what is being called the “biggest shake-up to the homebuying system in this country’s history.”

Almost one in five equity release mortgages are now taken out to provide financial support to family.

According to industry data, the expected wait for those looking to buy a property has dropped from just over 11 months to less than six months.

It is common for your first mortgage payment to be higher than your subsequent monthly payments for two reasons.

Firstly, a big congratulations, you’ve now exchanged contracts! After weeks and months of waiting, you are about to move in. What should you do first?

The chancellor will deliver her second budget this autumn. Due to slow economic growth and high inflation, the government need to manage a £40 billion shortfall in public finances. There have already been reports about changes to taxes including income tax and capital gains tax.

The chancellor has advised that landlords could have another tax to pay this autumn as the Treasury decide whether to extend national insurance contributions to rental income. 

According to a report in the Guardian, senior ministers have asked Treasury officials to look into a “proportional” property tax to see how it would work as an alternative to the existing stamp duty land tax on owner-occupied homes.