If you’re looking to own your very own home, there are a number of ways that you can get help. One of those ways is through getting a shared equity home loan.
What is a shared equity loan?
In order to get a mortgage and buy a property, you need to put down a deposit. Shared equity allows you to get a loan that acts as part of your deposit. Put simply, shared equity allows you to buy a property without paying a large deposit upfront – perfect for those people who want to buy a home of their own but don’t have the big lump sum.
Shared equity mortgages shouldn’t be confused with shared ownership schemes, where you buy a share of a home (usually between 25% and 75%) and pay rent to whoever owns the remainder.
Do I completely own a property if it’s bought through shared equity?
Yes. You own 100% of the property.
What happens when I sell a shared equity property?
You can sell your property at any time. Once you’ve sold it, you’ll pay back your mortgage as well as the percentage of equity you took out as a loan. If your home has risen in value then you’ll repay more than you initially borrowed; if it has gone down then you’ll pay less.
For instance, if you secured a 10% equity loan for a property you bought at £200,000, you’d have to repay 10% of the sum you sell your home for. So if it’s sold for £220,000, you’d repay £22,000 from an initial loan of £20,000.
Help to Buy
Recently, the Welsh Government launched a £170m shared equity scheme called Help To Buy. This initiative means that anyone can buy a new build home up to the value of £300,000 in Wales, so long as it’s their sole residence.
You’ll usually have to pay an initial deposit of at least 5% and the scheme will see the Welsh Government contributing a loan of between 10 and 20%.
How much does the equity loan cost?
Sometimes, the terms of equity loans vary, so it’s best to ask your representative on the exact terms. However, the majority of equity loans are interest free for the first five years, with a £1 administration fee payable every month. In the sixth year, homeowners will start to pay interest of 1.75%. Any increases will be established using the Retail Prices index plus 1%.
Can I repay part of my equity loan?
After a year, you can pay parts of your initial equity loan off in chunks of 10%. As a result, you’ll incur lower interest payments and own more of your home. This process is called staircasing.
To do this, you’ll need to pay for your property to be valued again and pay 10% of its value.
Let Howells help with your shared equity mortgage
by Tristan Lewis