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There are a number of ways of structuring finances or ownership in order to afford a first home. Shared appreciation and shared equity are a relatively new way.

Typically, shared equity or shared appreciation requires a first time buyer to take out a mortgage for between 60 and 75% of the property and then also take out a lower cost or free top up loan or equity loan to fund the majority of the rest.

In exchange for the privilege of borrowing both the mortgage and equity loan to afford that property the lenders will require a proportion of any increase in equity/value of that property when you come to sell it. Hence the names shared appreciation and shared equity.

Shared Equity is the basis for the Governments Open Market HomeBuy scheme which is targeted primarily at Social Housing tenants, Key workers – particularly in London and the South East and others who are considered to be in housing need. With the Open Market HomeBuy scheme, the successful applicant need not put down a deposit and for the first five years of property ownership need not pay any interest on the equity loan.

However, if they for whatever reason no longer fit the eligibility criteria for this scheme they will have to sell up and forfeit their eligibility for HomeBuy.

The Open Market HomeBuy scheme still requires the borrower to obtain a mortgage for 75% of the property so in many locations in the UK it can still be quite a financial stretch. This scheme has the advantage of being applicable to any property of choice of the applicant, as opposed to New Build HomeBuy share ownership scheme where properties are pre-selected. The Equity loan which makes up 25% of the purchase value is loaned to the purchaser in equal parts between the mortgage lender and the Government.

For those who do not qualify for Open Market HomeBuy shared equity scheme, ie primarily those who are not key workers living in the South of England, there is still a similar option – ‘shared appreciation’.

With shared appreciation the top up or equity loan is not free but charged at a low rate. In addition, the purchaser needs to stump up at least 5% of the property value as a deposit. On the positive side, the purchaser need only then take out a mortgage for 60% so the threshold for purchasing is slightly lower under this scheme. The biggest attraction of shared appreciation as a way of financing a first home is that the eligibility criteria are very wide.

By Helen Adams
www.FirstRungNow.com