So what is shared equity? You purchase a property and own 100% of it, but you obtain a mortgage for a certain percentage of the equity (e.g. 75%) and the developer and/or Government holds a charge (mortgage) over the remaining share (e.g. 25%); depending on the scheme, you may or may not pay rent on that 25% share. In simple terms, although you own the property outright, your main lender holds a legal charge over the property and, in addition, the developer and/or Government will secure a second charge over the property to secure the repayment of their share when you sell or decide to pay the equity loan off.

So what is shared ownership? You purchase only a share in the property (e.g. 75%) and the local authority, developer or housing association retains the remaining share (e.g. 25%) and you pay rent on that share. In simple terms, you have a share in the property, which is usually purchased with the assistance of a mortgage, but you do not own the property outright. You can purchase further shares in the property later (up to 100%) and this is called ”staircasing”. This increases your share of the property and reduces the share retained by the local authority/developer or housing association, which  would also reduce your rent payments.

If you are still puzzled, please contact me at sarah.wilkins@mablaw.co.uk and let me help you understand the options open to you.

Annual Percentage Rate (APR)

This is the rate that represents the cost of borrowing, as opposed to the interest rate. The APR, for example, will include certain charges in addition to the interest rate; this allows you to make comparisons between different forms of borrowing.

Completion Date

The date that you pay for the property and can move into it. The completion date is agreed at the time of exchange of contracts (if the property is structurally finished). I will telephone you on the day of completion to confirm you can collect your keys from the site office or estate agents, once the seller’s solicitors have received the purchase price monies from me.

Contract

This is the legal document that I ask you to sign and which confirms your details, your seller’s details and the property details, including the price. Your seller will sign a copy of the same document and I have to hold a signed contract on your file before I can exchange contracts for you.

Deposit

The usual deposit amount is 10% of the purchase price. This much is not always available, depending on the level of funding (mortgage) you are obtaining. You should let me know as early as possible what deposit you have available, so that I can check with the seller’s solicitors if less than 10% will be accepted (in the case of a FTBI – see below – no deposit may be required). I must hold the deposit monies in cleared funds in order to exchange contracts for you.

Exchange of Contracts

Once I hold your signed contract and cleared deposit, I can exchange contracts for you, from which point you (and the seller) are legally bound to proceed with the purchase. This involves me speaking to your seller’s solicitors on the telephone to formalise the terms of the contract and the completion date. I will always take your instructions before I exchange contracts to ensure you are happy with the completion date and happy to proceed.

Financial advisers

These are people who provide advice on a range of financial products. If they only advise on mortgage products, they are often called mortgage brokers.

Financial Services Authority (FSA)

The Financial Services Authority is the UK’s financial watchdog set up by the Government to regulate financial services in the UK and protect your rights.

HomeBuy and First Time Buyer Initiative (FTBI)

Government-funded schemes which offer people assistance in owning their own home.

HomeBuy Agent

HomeBuy Agents are appointed housing associations or housing corporations, who are providing a “one-stop-shop” and point of contact for affordable housing options in a given area in England and will handle the entire application process for many FTBIs .

Homebuyer’s survey

A surveyor’s report carried out on the property you intend to buy, which typically includes a property valuation.

Housing associations

Housing Trusts, Housing Societies and Registered Social Landlords who provide their local community with high quality and affordable homes in areas of greatest need.

Housing Corporation

The Housing Corporation is funded by the Government and provides the money or grants for affordable housing.

Interest-only mortgage

An interest-only mortgage is a type of mortgage where the monthly payments consist only of interest and do not include any capital repayments. The capital is normally repaid by other means at the end of the mortgage term.

Key workers

Those working in the public sector in health, education or community safety – such as teachers, nurses and police officers – in areas where high house prices are affecting recruitment and retention of key workers.

Legal Charge Document

A legal charge is the document which enables the mortgage lender to collect mortgage repayments (and repossess the property in certain circumstances such as non-payment.) Sometimes referred to as a Mortgage Deed, the document is signed by you and sent to the land registry at the time of registration of your purchase to secure the mortgage or mortgages you have on the property.

Mortgage offer

The formal paperwork which sets out the terms upon which the lender will grant a mortgage.

Mortgage Term

Length of the repayment period of the mortgage offered to you in years.

Registered Social Landlord (RSL)

This is the technical name for social landlords who are registered with the Housing Corporation.

Repayment mortgage

A type of mortgage where the monthly payments consist of interest and capital. If payments are maintained, then the mortgage is repaid by the end of the mortgage term.

Valuation

An assessment of the current market value of a property, carried out for the benefit of the mortgage lender.

So what is shared equity? You purchase a property and own 100% of it, but you obtain a mortgage for a certain percentage of the equity (e.g. 75%) and the developer and/or Government holds a charge (mortgage) over the remaining share (e.g. 25%); depending on the scheme, you may or may not pay rent on that 25% share. In simple terms, although you own the property outright, your main lender holds a legal charge over the property and, in addition, the developer and/or Government will secure a second charge over the property to secure the repayment of their share when you sell or decide to pay the equity loan off.

So what is shared ownership? You purchase only a share in the property (e.g. 75%) and the local authority, developer or housing association retains the remaining share (e.g. 25%) and you pay rent on that share. In simple terms, you have a share in the property, which is usually purchased with the assistance of a mortgage, but you do not own the property outright. You can purchase further shares in the property later (up to 100%) and this is called ”staircasing”. This increases your share of the property and reduces the share retained by the local authority/developer or housing association, which  would also reduce your rent payments.

If you are still puzzled, please contact me at sarah.wilkins@mablaw.co.uk and let me help you understand the options open to you.

Staircasing – what does it involve? If you are not sure whether you are financially able to staircase and purchase further shares in your property, it may be worth checking out the market in your local area to get an idea of the likely prices of property and obtain a valuation. You will need to contact your Housing Association to arrange for this up-to-date valuation and this will be something you will have to pay for. Once you have this valuation you can then decide what further percentage you wish to purchase. Your individual Lease may stipulate the amount you can staircase in any one stage and the Housing Association should be able to confirm this for you.

If you have the funds available from savings or an inheritance, for instance, you will be in a position to proceed immediately, and you would need to instruct me as your solicitor to deal with the legal paperwork on your behalf. Another option open to you would be to contact your existing mortgage company and arrange for a further advance. Your last option would be to obtain a new mortgage from a new lender, borrowing enough money to purchase the further share and to pay off the existing mortgage. You may wish to speak to an independent financial adviser or mortgage broker in relation to your current mortgage product and what new products could be available for you.

Once you have decided the way forward, you will need to instruct me to proceed with the transaction, which must take place within three months of the date of the valuation. You will need to consider the stamp duty implications of staircasing and this will depend on the percentage share you are purchasing and how you paid stamp duty on your original purchase of the property. I will be able to give you further information depending on your individual circumstances. Once the staircasing has been completed, your lease will be noted accordingly, so on the sale of the property there is a record of the extra share or shares purchased.