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.
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