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Shared equity schemes are available on newly built homes from property developers and is backed by one of the Governments housing initiatives known as HomeBuy Direct.
HomeBuy Direct is an equity loan scheme where buyers are offered up to 30 per cent of the purchase price, co-funded by the developer suppplying the property and the Government.
The remaining 70 per cent of the equity is generally funded through a mortgage (from a specialist shared ownership mortgage provider or high street bank) and a deposit.
The applicants are subject to an affordability check to assess their financial situation and ascertain the size of equity share they are able to afford.
For the first five years there is no fee charge for the equity loan, however, a fee is incurred from year six onwards.
After the initial purchase, the homeowner has the option to buy additional equity (at the market rate) up to 100 per cent and buy the property outright.
If the buyer wishes to sell the home, it is sold on the open market and the equity loan must be repaid from the sale proceeds. The monies are shared equally between the developer and the Government.
If the value of the property has increased, the buyer, the developer and Government will all share in this increase. If the value of the property has gone down, the Government and the developer will only share the sale proceeds that are left over once the mortgage has been repaid.
The general eligibility rules are similar to shared ownership:
The household income must be less than £60,000 per annum and unable to afford a home outright on the open market.
The schemes are targetted towards first time buyers and people who have previously owned properties but are now unable to buy without assistance, perhaps to a separation or a growing family or due to a relocation of work.
Schemes such as shared equity offers a different dimension of flexibility into the housing market. It is critical that the Government continues to offer this type of funding to enable housebuilders to provide more affordable homes for people to get onto or move up the property ladder.