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HomeBuy Direct is the main shared equity scheme under the Government's 'homebuy' umbrella of various affordable housing products. Under the homebuy direct form of shared equity you buy a new build property with an equity loan, typically for 30%, provided half and half by the Government and a builder.
The difference between Shared Equity and Shared Ownership
The differences between shared equity and shared ownership are complex, but generally, with shared equity you purchase ALL of a property but with an equity share loan making up the difference between the mortgage and purchase price (i.e. to a large extent, this shared equity loan is your deposit). In contrast, shared ownership schemes are usually undertaken whereby you only own a specific share as a lease on a shared ownership property (normally owned by a housing association), and you can only achieve 100% ownership by 'staircasing' up from shares of 25%+ to full ownership.
Strengths and weaknesses of Shared Equity v Shared ownership
In Shared Equity's favour:
Your own personal deposit contribution in a shared equity property purchase can be small (often as little as 5%, compared to a standard minimum of 10% on shared ownership schemes) Shared equity is normally on houses rather than flats, and you are therefore less likely to have to pay service charges
Most importantly, rates tend to be better on shared equity mortgages rather than shared ownership home loans because the lenders in a shared equity case will treat the 'loan to value' as being based on your share divided by the whole market price – so you could find yourself putting down as little as 5% of your own money as deposit but obtaining a mortgage rate put aside for a 30% deposit!
Against shared equity:
As open market shared equity schemes are currently closed to new funding, you are presently restricted to new build shared equity homes. With shared ownership, the properties are USUALLY new builds available under the new build homebuy scheme, however, it is also possible to buy shared ownership properties on a second hand basis through a resale scheme when an existing owner sells their share – so potentially, shared ownership offers more choice of properties. The initial share is normally much larger in shared equity (typically 70%) compared to 25% minimum with shared ownership. Thus, the mortgage is likely to be much larger on a shared equity property. Moreover, although shared equity mortgage rates can be better and the deposit lower, 5% deposit on a 70% share may well be more than a 10% or even 15% deposit on a 25% share.
Most importantly, with shared equity, as you are buying the whole property you may have to pay stamp duty tax on the whole property (if it is over the threshold) whereas you are unlikely to have to pay any stamp duty buying a shared ownership home
Allan Water Homes in Alloa, have properties available on a Shared Equity Basis for all types of buyers.
Their website is www.allanwater.co.uk.