Help to Buy : Equity Loan and Shared Ownership compared

How do you know which scheme is right for you?

What is the scheme?

 

  • Shared Ownership

Under a Shared Ownership scheme you part­-own and part-rent your home.

The minimum share bought in a property is usually 25% and in some developments it can be higher than 25%. The maximum initial share you can purchase is 75%.

  • Help to Buy : Equity Loan

This scheme helps you by keeping your mortgage payments lower.

If you can offer a deposit of 5% of the home’s total value then you can borrow up to 20% (or 40% in London) of your home’s value from the government. This loan is interest free for the first 5 years.

 

Who is eligible?

 

  • Shared Ownership

First time buyers, or people who previously owned a home and have since sold but are unable to buy on the open market. You must have a combined household income of less than £90,000 within London and £80,000 outside of London.

For specific development eligibility criteria please see the property listing.

  • Help to Buy : Equity Loan

First time buyers or people who have sold, or are in the process of selling, their other home. From march 31st 2021 the scheme will change.

 

What type of property can I buy?

 

  • Shared Ownership

A new build property or a re-sale property that was built and sold in the past and is now being sold by existing shared owners, or has previously been part of the Shared Ownership scheme.

  • Help to Buy : Equity Loan

The home must be a new build and worth less than £600,000. From March 31st 2021 there will be Regional price caps in place.

 

How much deposit do I need?

 

  • Shared Ownership

At least 5% of whatever share you’re buying. For example, on a 25% share of a £400,000 home, this would be £5,000.

  • Help to Buy : Equity Loan

At least 5% of the worth of your entire home. For example, on a £400,000 home, this would be £20,000.

 

What about my monthly repayments?

 

  • Shared Ownership

You’ll pay the mortgage on your owned share. You also pay subsidised rent on the remaining share. The rent is increased annually in accordance with the lease.

You also pay a service charge to maintain the building.

  • Help to Buy : Equity Loan

You will pay mortgage payments. You will also pay £1 per month as a management fee for your equity loan.

After 5 years you will be charged monthly for the equity loan if you have not yet repaid it. If the property is leasehold then you will also pay a service charge to maintain the property.

 

What about stamp duty?

 

There are two ways you can pay stamp duty.

You can pay either a one-off payment based on the full market value of the property as if it had been purchased outright from the beginning, or staged payments paying the amount due on the initial share, and then only paying further amounts when the shares purchased exceed 80% of the value of the property (source: Greater London Authority).

Your solicitor will be able to tell you the exact cost.

  • Help to Buy : Equity Loan

You’ll pay stamp duty as normal on the value of the entire home.

Read more about the Stamp Duty Holiday here.

 

Anything else to repay?

 

  • Shared Ownership

No.

Although, if you wish to buy more shares or sell your home there are costs involved. Read more about those costs here.

  • Help to Buy : Equity Loan

The loan is interest free for the first 5 years and after that you’ll pay a fee each month.

 

What about selling?

 

  • Shared Ownership

An independent valuation of your home will be carried out. L&Q are given first opportunity to sell your home themselves within the Shared Ownership scheme. If they are unable to find a buyer within an agreed timescale, you can sell it yourself on the open market. Read more about selling your Shared Ownership home here.

  • Help to Buy : Equity Loan

If you haven’t repaid the loan by the time you come to sell the property, the government will reclaim its percentage stake in your home at its current value.

For example, taking a loan of 40% means you may be paying back 40% of the sale price of your home to the government when you sell. You’ll need to obtain an independent valuation prior to sale to determine the amount to be repaid.

Each scheme has its own benefits and you should seek independent financial advice to ensure you are choosing the best option for you

Benefits of buying

L&Q Shared Ownership

  • You own part of your home, rather than paying rent with no return.
  • You don’t need a huge deposit.
  • Shared Ownership makes mortgages more easily accessible if you’re on a lower wage, because you only need to pay for a share of your home.
  • You can buy more shares when you are able to afford it but you do not have to do so. There are no time limits as to when you can buy additional shares.
  • Monthly repayments can work out cheaper than an outright mortgage, and sometimes are less than renting privately.

Benefits of buying

Help to Buy : Equity Loan

  • There’s no maximum earnings cap for this scheme.
  • You do not pay any interest on your loan during the first 5 years.
  • This scheme helps people who would otherwise have needed to take out a costly 95% mortgage.
  • The fact you will need to borrow less overall to purchase your home means you may be more likely to qualify for lower mortgage interest rates.

Other points to consider about Shared Ownership:

  • There’s a maximum earnings limit of £80,000 for homes outside of London and £90,000 for homes in London.
  • You may prefer to own your entire home right from the start, rather than a share.
  • Your subsidised rent will increase over time in accordance with your lease agreement.
  • Your lease may place restrictions on the home improvements you can do. If you intend to make any structural alterations to your home, you may need to get permission first.

 

Other points to consider about the Help to Buy : Equity Loan :

  • Only suitable for people whose household income is sufficient to repay a mortgage for the entire value of the home.
  • Your loan fees will become more expensive over time. You need to repay the loan in chunks of at least 10% of what you owe.
  • The equity loan must be repaid after 25 years. The amount you will ultimately need to repay on your Help to Buy : Equity Loan is not fixed. Instead it will fluctuate with the market value of your property because it is percentage-based. This means that if your house has risen in value you may be eligible to pay significantly more than you originally borrowed.
  • Although the property is in your name, you may need to seek approval before starting any home improvements to the property.
  • From 2021 there will be regional price caps in place and the scheme will only be available to first time buyers.

The Help to Buy : Equity Loan will change in 2021

Read more about these changes

If you think Shared Ownership is the right scheme for you, take a look at some of our homes

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