Best shared equity mortgage deals

What is a shared equity mortgage?

When you’re buying your very first home, it can be difficult to save up the large deposit required to get a foot on the property ladder. That’s where a Shared Equity scheme can help. With a shared equity mortgage, you take out a standard mortgage for most of the property’s value, then use an equity loan to cover part of the rest.

You’ll usually need a deposit of at least 5%, then borrow the rest through your main mortgage and the equity loan.

Let’s say you’re buying a £250,000 home:

You put down a 5% deposit (£12,500)

You take a mortgage for 75% (£187,500)

The remaining 20% (£50,000) comes from the shared equity loan

You don’t have to pay back the equity loan straightaway. It’s interest-free for the first few years (how long depends on the scheme). After that, you’ll start paying interest on it. You’ll also need to repay the full loan when you sell your home or pay off your mortgage, but this will be a percentage of what your home is worth at that time, not the original amount you borrowed.

Why choose shared equity?

Shared equity mortgages are especially helpful if:

• You’ve got a small deposit
• You’re buying a new build home
• You need lower monthly repayments in the early years

Main benefits include:

• You borrow less on your main mortgage
• You can access better mortgage rates with a bigger overall deposit
• You get more flexibility while keeping ownership of the full property

This type of mortgage has helped many first-time buyers and home movers find a way onto the property ladder.

However, there are some drawbacks to a shared equity mortgage.

• You won’t own all of your home
• You’ll usually have to pay fees as time goes by
• You may have to pay off some or all of the equity loan before you move

Our L&C mortgage advisers can help you decide if a shared equity mortgage is the best fit for your circumstances.

How shared equity mortgages work

Shared equity is usually offered through specific schemes. These could be government schemes or deals offered by housing developers.

The equity loan is based on a percentage of the property’s value, so the amount you repay will go up or down depending on what the home is worth when you repay it.

You can usually repay the equity loan in full when you remortgage, sell your home or decide to pay it off early. Some schemes also let you repay in chunks (known as staircasing).

Who can get a shared equity mortgage?

Each scheme has its own criteria, but most shared equity mortgages are aimed at:

• First-time buyers
• People buying a new build property
• Those with a small deposit

You must be 18 or older. You can apply on your own or with other people, but if you’re submitting a joint application, all applicants must meet the eligibility criteria - and if you’re married, in a civil partnership or cohabiting with your partner, it’s essential that you submit a joint application.

Lenders will still need to check you can afford the mortgage repayments, so you’ll need to provide:

• Proof of income
• Bank statements
• Credit history details
• Information about the property and equity loan

We’ll guide you through the application and help make the process as smooth as possible.

How to find the best shared equity mortgage deals

Shared equity mortgages aren’t available from every lender, so it helps to have a mortgage broker who knows where to look.

We work with over 90 lenders and can compare deals across the market to find one that fits your needs. Whether you're buying a new build through a government scheme or a developer-backed one, we’ll make sure you’ve got all the right options.

You can check the best deals online or speak to one of our expert advisers.

Making repayments on a shared equity mortgage

Your monthly mortgage payments will usually be lower than with a standard mortgage because you're borrowing less up front.

You’ll also need to think about the equity loan. It’s usually interest-free for the first 5 years (depending on the scheme), but interest charges kick in after that.

When you sell your home or repay the loan, the amount you owe is based on the value of your home at that time, not the original loan amount. So if your home has gone up in value, the amount you repay could be higher than what you borrowed.

When paying off your equity loan, you’ll need to enlist the services of a solicitor to handle your conveyancing, and there may also be an administration fee to pay, so you should factor this into your budget when considering your repayment strategy.