Mortgages - Difference Between Shared Ownership and Shared Equity? | Mortgage

Mortgages - Difference Between Shared Ownership and Shared Equity?

by JaneMorgan

In shared equity you agree to own a percentage of the property and this is shared with a builder or the Government, the split can vary but is typically 85% owned by you and 15% owned by the other party. Shared ownership differs in as much as you will pay rent on the portion of the property you don't own.

A share to buy mortgage is when two or more friends or families members are buying a property together. What happens is that no one owns the property outright you all have a share in it. The main difference is that you are sharing the ownership of the property with other private individuals rather than a housing association or builder.

In other words, you still have a form of shared equity in that you do not own the whole property but have a share in it. The main difference is that you are sharing the joint ownership of the property with other private individuals rather than the Government.

So, what is a Shared Ownership Mortgage?

A Shared Ownership Mortgage Scheme is used when a property is part owned and part rented by you. These schemes are becoming very popular for first time buyers with a small deposit as you only pay the deposit on the share you own.

How is the rent calculated?

The housing association to whom you will pay your rent will give you the calculations and they will ask your mortgage broker/lender to assess your affordability.

One of my clients I recently helped had their rent assesses as 2.75% of the share owned by the housing association. The rent was calculated as 211.25 pounds per month.

Are mortgage products the same if I buy a shared equity/ownership house?

Lenders will vary, some will consider shared ownership or shared equity and some will not. My best recommendation is to suggest you find out what is available for your situation before looking for your new home.

Do my earnings affect whether I can get a shared ownership mortgage?

Take care when looking at shared ownership properties as sometimes there is a limit to how much you can borrow. Always ask, as I have had clients paid non refundable mortgage booking fees only to find out they earn too much!

Is there an easy way to determine the deposit needed?

The deposit you need is based on the part of the property you purchase, not on the total purchase price. The amount of deposit required can vary. Shared ownership mortgage schemes vary from lender to lender with some lending up to 95% of loan to value on the share you purchase.

Lets suppose you wanted to buy a 50% share in a property valued at 210,000 pounds. The lender wanted a deposit of 5%, in this case you would need 5250 pounds as your deposit. A 25% share of the property at 52,500 pounds, would mean a 5% deposit of 2625 pounds.

Are these types of mortgages easy to obtain?

No simple answer here, you will be assessed against the lenders criteria, if you are a good fit you will get a mortgage and if you aren't you wont. At any rate your mortgage broker should be able to advise you.

Lenders don't unfortunately have common requirements, they are normally very individual to each lender. Getting a loan can sometimes be fairly straightforward whereas at other times it is not.

We have a legal requirement to include the following:- Your home may be at risk if you do not keep up repayments on your mortgage.

I have written several articles related to mortgages, you will find more dotted around the Internet.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Learn more about shared ownership mortgages. Stop by Vivienne Connery's UK site where you can find out all about shared equity mortgages and what they could do for you.