2nd-Mortgage

Shared equity mortgage is a new form of joint mortgage that the Government is promoting in order to help first time buyers purchase property. In this kind of a home loan, the lender gets a share of the equity of the home in exchange for providing a portion of the down payment. When the home is later sold, the lender is entitled to participate in the proceeds from the resale.

Shared equity is a new concept in the United Kingdom. The chancellor of U.K. struck a deal with three of Britain’s biggest lenders – HBOS, Nationwide Building Society and Yorkshire Building Society – where the lenders along with the government, will share some of the cost of buying a home in England.

Shared equity is the basis for the Government’s Open Market HomeBuy Scheme. Under the Open Market HomeBuy shared equity scheme, you can buy 75% of a property yourself with a shared equity mortgage from a select number of lenders and the remaining 25% with the help of a ‘top up’ shared equity home loan from the mortgage lender and the Government. You can choose a property being offered on the open market subject to HomeBuy Agent’s approval of the property.

After 5 years, a small amount of interest is payable on the ‘top-up’ shared equity loans. This is fully repayable while selling the property. When you sell the shared equity property you may also have to forfeit a portion of any increase in equity.

People who can apply for such a loan are existing council tenants, existing housing association tenants, people on council housing waiting lists, key public sector workers and some other priority first time buyers.

The shared equity mortgage is designed to make it easier for people to purchase the property they want. It can help you achieve what would normally be out of reach. Obviously this can benefit some borrowers but the consequences of not being able to take on the additional debt in the future are serious. Financial advice must be taken before taking this type of mortgage.