What is a shared equity mortgage?
Shared equity mortgages tend to be offered by house builders, local authorities, or the Government, in order to help first time buyers get a foothold in the property market. There are several types of share equity mortgage - what they tend to have in common is that they provide you with a loan to cover some of the value of the property. This can mean a mortgage that’s more accessible to first time buyers or those without the means to save up a substantial deposit.
Types of shared equity mortgage currently available include:
- Help To Buy – this is a Government-backed initiative which offers mortgages at up to 95% LTV in order to help people buy their own home
- NewBuy – This is a scheme that is intended to assist people in purchasing a newly built home
Who is eligible for a shared equity mortgage?
NewBuy mortgages are aimed people who only have funds for a 5-10% deposit on the home they wish to buy. The lenders participating in the scheme will provide a 90-95% loan-to-value (LTV) mortgage for buyers meeting their qualifying criteria. NewBuy is available to both first-time buyers and to people who already own a home but are unable to save up a substantial deposit.
What is the Loan-To-Value ratio (LTV)?
The loan to value ratio of a mortgage indicates how much of your property you own outright (covered by your deposit, and commonly known as equity) and the amount you are borrowing (covered by your mortgage), expressed as a percentage. Because they are aimed at first time buyers and people without a large deposit saved up, NewBuy mortgage will usually offer a high LTV or around 85-95%. To compare top mortgage rates and find the best NewBuy mortgage deals for you, use the mortgage calculator to search over 5,000 mortgage deals based on your personal circumstances.
How does a shared equity mortgage work?
Shared equity schemes vary, but in general they work by giving buyers a loan that forms part of their deposit. The buyer then needs to take out a mortgage for the remainder of the property price, as well as finding a lump sum to pay the remaining deposit. However, because the loan covers some of the deposit, some buyers may be able to get a mortgage with a deposit that’s as low as 5% of the property value. Home buyers wishing to take advantage of the scheme will need to qualify for a mortgage with a mortgage lender in the usual way and be subject to the lender’s normal assessment criteria.
If you apply for a shared equity mortgage, lenders will consider criteria such as:
- Your earnings - Do you earn enough to borrow the amount you want?
- The stability of your income - Are you self-employed or new in a job?
- Your outstanding debts - How much debt do you have?
- Your credit rating - Have you ever missed a mortgage payment or other repayment in the past? Do you have any County Court Judgments (CCJs) against you? Have you even been bankrupt?
- Your eligibility for a shared equity mortgage – if you apply for a mortgage under a shared equity scheme, you may be required to fulfill certain additional criteria specific to this scheme.
How much will a shared equity mortgage cost?
Many shared equity mortgage schemes have a relatively high loan to value (LTV), which means that they will generally be more expensive than mortgages with lower LTVs. This is because the lender is taking on more risk due to the greater amount owed.
To find the best shared equity mortgage deals, click on the FREE mortgage calculator above and compare over 5,000 deals tailored to your personal requirements.