What does Shared Equity mean?

Shared Equity is a popular solution for those who can’t actually afford to pay the so high mortgage payments, so this scheme comes to their help. There are two major points which have to be highlighted, which work as an advantage to the purchaser: firstly, there is no need of an upfront deposit with the Shared Equity scheme, and secondly, there will be certainly lower mortgage payments required than usual. As its very name suggests, the scheme supposes that the lender becomes a sort of co-owner of the property, by the very fact that it will pay for a certain percentage of the home.

Let’s assume the home you are about to buy has a set market value of £150,000, but you can’t afford to make the usual deposit, nor can you support the high mortgage payments. Then, upon agreement with the lender (the bank, a housing association), you may decide to give up for share as much as 35% top allowed limit, while you take out mortgage only for the remaining 65%. Now, if you decide to give up for share say 20% of the above mentioned home, that means that you will actually have a mortgage on £120,000 only.

The drawback is that you will suffer the losses when the home is eventually sold, when 20% of the real market value of the home at that time comes under the legal right of the lender. If, you sell the house in 10 years, and its value has increased to £200,000, that makes 20%x50, 000= £10,000 for the lender’s benefit.