Originally published on 25th November 2009.
Shared equity in the UK is on the increase and seen by some as a
useful way of getting on to the property ladder. It was the basis
for the Government's 'Open Market HomeBuy' scheme which
has now been scrapped. It is also the basis of the
'Government's HomeBuy Direct' scheme for buying new
homes.
With shared equity, the buyer does not own the property in
conjunction with any other party (unlike shared ownership) but
instead takes out more than one loan for the property. A mortgage
(usually from a bank or building society) and an 'equity
loan' (often from the developer). The purchaser is the only
person on the deeds. There is no co-owner. However, at a set future
date or when the property is sold, the purchaser has to repay the
loans and a proportion of any increase in equity of the property to
the party making the 'equity loan'.
The Banking and Finance Group and the Real Estate Department of
DMH Stallard LLP have acted for a property developer in the
creation of its own shared equity scheme which has now been
marketed on one of their sites.
The developer was willing to offer up to a specified percentage of
the purchase price of the property as an 'equity loan'. The
developer took a second charge over the property and the facility
agreement provided for the repayment of the loan at the earliest of
a set future date or upon the sale or transfer of the property. At
such a future date, the developer is due to receive either the
original sum lent to the purchaser or that percentage of the
eventual resale price, depending on the circumstances.
Advice was provided to the developer about the potential Consumer
Credit Act implications of providing such a loan. The facility was
structured to ensure that the scheme fell within an exemption under
the Act.
Such schemes may help buyers to enter the market as well as
assisting developers with the sale of properties during the current
economic climate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
