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Shared Ownership Vs Shared Equity

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1st Apr 2020 (Last updated on 18th May 2020) 10 minute read

There are a variety of affordable housing schemes that are government-funded and a great way to help buyers get onto the property ladder. Two of these schemes include shared ownership and shared equity. Both schemes help buyers who may not otherwise be able to afford to buy a home, purchase the perfect property for them. 

Shared ownership helps first-time buyers and those with a lower income purchase a home by allowing them to buy shares of a property whilst paying rent on the rest. With shared equity, however, buyers can pay a small deposit for a property and then use an equity loan to top it up. Although these schemes help those with an income of less than £60,000 get onto the property ladder, they won’t be available to everyone. 

Both shared ownership and shared equity have a number of restrictions which may make them unsuitable for you and your personal circumstances. To help you make an informed decision, Compare My Move has worked with property experts to create a guide describing what each scheme is, the differences between them and how they may relate to you.

This article will cover the following:
  1. What is Shared Equity?
  2. Pros and Cons of Shared Equity
  3. What is Shared Ownership?
  4. Pros and Cons of Shared Ownership
  5. Help to Buy Shared Equity and Shared Ownership in London
  6. Shared Ownership Vs Shared Equity
  7. Special Shared Ownership Schemes
  8. Selling a Shared Ownership Property
  9. Saving You Money When You Need it Most

What is Shared Equity?

Through shared equity schemes, a buyer can pay a small deposit (at least 5% of the purchase price) which they can then top up to 20% by using a no cost equity loan or low-costing loan. The remainder is then paid for by your shared equity mortgage.  

This scheme is usually used to purchase new-build properties and allows first-time buyers to acquire their first home without paying a large deposit. In fact, Compare My Move’s previous research states that the average young British renter can get onto the property ladder 2 years earlier by using the Help to Buy: Equity Loan, saving £10,000 in rent in the process.

It’s important to remember that despite the term “shared equity” suggesting that you’ll be sharing the property with someone else, you will, in fact, own 100% of the home. The name simply means that you will need to take out an equity loan which then counts towards your deposit. 

Once the mortgage term ends, you will be required to repay the equity loan in full, if it’s not paid-off already. The typical time period for the mortgage term is 25 years. The amount you pay back will be proportionate to the value of the property at the 25-year mark. This means you could end up paying back more than you borrowed, depending on the housing market at that time.

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Pros and Cons of Shared Equity

To help you decide which is right for you, it’s important to weigh up both the advantages and disadvantages of each scheme. To get you started, we’ve created a list for both the pros and cons of shared equity:

Pros of Shared Equity:

  • You only require a 5% deposit making it more affordable.
  • You will own 100% of the property outright.
  • It’s available to first-time buyers and homeowners without second homes. 
  • There shouldn’t be any resale restrictions. 
  • It’s available for a variety of property types and developments. 

Cons of Shared Equity:

  • Shared Equity is usually only available with repayment mortgages
  • If property prices increase, so will your loan. 
  • Depending on this change in prices, it can be more expensive in the long-run compared to other types of loans available.

What is Shared Ownership?

Backed by the government, the shared ownership scheme allows first-time buyers and those with a lower income to buy shares of their property whilst paying rent on the rest. You can begin by purchasing a share of between 25%-75%. It’s a helpful way to get onto the property ladder and eventually own 100% of your home by purchasing more shares later down the line. 

You will typically enter into a shared ownership agreement with a housing association or similar organisation. You will own a certain percentage of the property to begin, then pay the rest in rent with the opportunity to purchase more shares during your time living there. For example, you could buy 40% of the market value of the property and then pay rent on the remaining 60%. 

The rent agreed is often set at an affordable rate and is usually 3% of the other party’s shares of the property value. When you’re financially able to, you can then increase your percentage stake in the equity of the home. To do this, you will need a shared ownership mortgage. These will usually be smaller mortgages as your only purchasing a share of the property. A smaller mortgage often means a smaller deposit. You can expect to pay a deposit of around 5%-10% of the share you’re buying.

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Pros and Cons of Shared Ownership

Below, we’ve listed the pros and cons of shared ownership to help you make an informed decision.

Pros of Shared Ownership

  • It’s accessible to those with a lower income as you’re only required to pay a 5% deposit instead of 10-20%.
  • You have the potential to own 100% of your property but increasing your charges. 
  • It can help you get approved for a mortgage.
  • The rent will be much cheaper.
  • You can choose how you pay your Stamp Duty - either as one payment or in stages.
  • The shares you own can be sold at any time. 

Cons of Shared Ownership

  • Shared ownership properties are often leasehold, meaning you will have to pay a service charge on top of rent.
  • It may mean there are restrictions on what you can do to the property.
  • Buying an increase in shares in your property can be expensive.
  • You won’t own 100% of your property and will still be renting. 
  • The scheme is restricted to specific properties.
  • Not all lenders will offer a mortgage for a shared ownership property.
  • It makes it difficult to sell the property in the future.  
  • Maintenance charges must be paid in full

Help to Buy Shared Equity and Shared Ownership in London

Due to the higher property prices, purchasing a property in London can be slightly different from the rest of the UK. According to the UK House Price Index, the average property price in the UK is currently £230,232, whilst in London, it’s £471,053. 

This large price difference means that each Help to Buy scheme must adapt when looking at London property. For example, when looking at the Help to Buy ISA, it can be used for properties priced up to £250,000 in the UK, but up to £450,000 in London. Changes are also evident in both the Shared Ownership and Shared Equity schemes. 

In London, the shared equity scheme offers a loan of 40% of the property value instead of the 20% that’s offered to the rest of the UK. 

There are a variety of shared ownership schemes in London, but the earning thresholds are slightly different. If you want to be part of a shared ownership scheme in London, then you need to be a first-time buyer and have a household income of under £90,000, compared to £80,000 for the rest of the UK.

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Shared Ownership Vs Shared Equity

CriteriaShared OwnershipShared Equity

Who is eligible? 

  • First-time buyers only.
  • Eligibility requirements may be set by the specific landlord.
  • UK residents only.
  • Open to both first-time buyers and homeowners.

Property type

Leasehold only

Freehold and leasehold

Minimum deposit

5% of the share being purchased

5% of the property’s full price

Initial share of ownership

Less than 100%

100%

Mortgage requirement

Between 25% and 75% of the property value

Minimum of 75%

Other costs required

  • Rent.
  • Typical leasehold charges like ground rent and a service charge.
  • Full maintenance cost.
  • If you're buying a leasehold property - service charge and ground rent.
  • Insurance
  • Maintenance costs
  • Under Help to Buy, the buyer must pay interest on equity loan after the first five years.    

Special Shared Ownership Schemes

Shared Ownership schemes are not only available to first-time buyers and those with a low income. There are also other specific groups of people who have access to shared ownership schemes with preferential conditions. These schemes include:

  • Home Ownership for People with Long-Term Disabilities (HOLD)
  • Older People’s Shared Ownership (OPSO)

HOLD is a scheme designed to help people with a disability buy a shared ownership property. It is especially helpful for those who require special housing needs due to their disability. Through this scheme, homes on the open market can be bought on a shared ownership basis if properties from the housing association are not suitable.

OPSO, however, is a scheme for people aged over 55. It works the same as a typical shared ownership scheme except you can only buy up to 75% of your home. Once you own 75%, you will no longer have to pay rent to make up the remaining percentage. 

To find out more about these specific types of Shared Ownership, you can visit the Help to Buy website where they provide a more detailed description. 

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Selling a Shared Ownership Property

Selling a shared ownership property can be more complex compared to traditional selling, but it is possible to sell it at any point you wish. If you own 100% of the property, it will be a much easier process and you can sell it yourself. If you do decide to sell, then are a few points to consider that will help you get started. 

When looking at the terms and conditions of your lease, if you own a share in the property, the housing association should have 8 weeks to find a buyer. This begins once you’ve signed the contract of sale.

To complete this contract, you first need to inform your housing association that you’d like to move and sell the property. You will then be required to pay for a RICS surveyor to carry out a property survey and value your home. You will be provided with a list of surveyors from your housing association but it’s still important to compare surveying quotes and find the right professional for you.  

You will also be required to share your conveyancing solicitors details to begin the selling process. Again, don’t forget to compare conveyancing quotes to allow you to find a verified, experienced conveyancer who can help ensure a seamless sale. 

When signing the contract of sale, you will also need the signature of anyone else who bought the property with you. If you are the sole owner, this won’t be necessary. You will also need to acquire an Energy Performance Certificate (EPC) before you can continue with the sale. 

If your housing association cannot find a suitable buyer before the 8 week period is up, then you will be allowed to sell the property through an estate agent or even privately. Your chosen estate agent will be required to complete a shared ownership form.

Saving You Money When You Need it Most

No matter how you decide to purchase your new home, it’s still important to think ahead and plan as much as possible to help you save money when you need it most. Don’t forget that the process doesn’t end with simply paying the deposit, there’s still lots to do and plenty of people who are available to assist.

Whether you’re comparing conveyancing quotes, surveying quotes or removal companies, Compare My Move can connect you with the best in the business, helping you find the right professional for the job.

Zenyx Griffiths

Before Compare My Move, Zenyx once wrote lifestyle and entertainment articles for the online magazine, Society19 as well as news articles for Ffotogallery.