It is very common on Regeneration estates for a form of shared equity to be offered. Some work fantastically well, some are really poor options barely worth considering. In our experience, some authorities understand and sell them well, whilst some barely understand the basics.
If you’re considering shared equity, the first issue we suggest is to check you qualify. In most cases, qualification requires you to be –
1) A resident owner, not a Landlord
2) Having been a resident owner continuously for a specified period of time, normally a few years or more
So what is it NOT?
Ok, perhaps an unusual first question in explaining something but also needed as our clients repeatedly get shared ownership and shared equity mixed up. They are different!
As a result of this, we are also regularly told by clients that they don’t want to consider shared equity because they are the only owners right now and want to be the same again. This is the point we’re normally pulling our hair out.
With shared equity, you WOULD be the only owners. It is shared ownership that you only own part. With shared equity, there is no rent on the portion of the EQUITY that you don’t own. You pay it off when you sell in the same way that if you have a mortgage, you pay off the equity that the mortgage lender owns when you sell.
Shared equity can work very well or very badly. If you’re going to rule it out, please don’t do so on this standard misunderstanding. Consider everything else and then decide whether it is a viable option for you or not.
See our useful guide on the differences between shared equity and shared ownership below.
So what is it?
Shared equity is subsidised housing that is available to assist qualifying homeowners to remain living on the estate if they wish. Sometimes, it’s available to buy further afield as well. It isn’t available to the general public.
If you invest say half the money required to buy somewhere, the authority or their development partner will invest the remaining half. Whilst you own it, you are the sole owner. There is no rent to pay.
When you sell it, you will receive half what it sells for and whoever put in the other half will receive their half. That means if you improve the value, the Council or partner will share in the improved value. However, it also means that you’re getting to live in somewhere valued potentially far more than you are actually paying for it. The Council or their partner is investing money into something that they may not see a return on for many years.
On the face of it, shared equity should be a fantastic detail. However, the devil is in the detail so consider issues such as the below.
Restrictions on renting
You normally can’t rent the property out. It’s designed to allow you to remain living in the area, not for you to be able to secure potentially a very good rental income. For most people, this is a non issue but consider whether it could be a stumbling block for you.
Are there any rights of succession?
It’s common for there to be one right of succession but that isn’t always the case. That means that if you died, your son or daughter (for example) could inherit, but their son or daughter couldn’t inherit it from them. Whoever is investing the equity funding will insist on this as they are most likely already assuming they are getting no return on their investment for perhaps 20 years or so. They wouldn’t extend this further. For most people, again this is a non issue but consider whether it could be a stumbling block for you.
Who pays the extra stamp duty?
If you are selling on Compulsory Purchase terms, you are entitled to recover stamp duty on the principle of equivalence. For example, if you sell at a price of £300,000, you are entitled to recover stamp duty of £5,000 towards buying elsewhere which is what you would pay if you hypothetically buy somewhere at the same price.
However, lets say you sell at £300,000 and buy a shared equity property at £600,000. The stamp duty is now £20,000 leaving the amount you can recover some £15,000 short.
Consider who is paying this £15,000. There is no legal entitlement to recover it, albeit we have on many occasions negotiated that the acquiring authority will fund the shortfall.
What about the service charge?
In particular, if you’re buying a newbuild, the services are likely to be far better than what you’re losing. That quality costs! You’ll need to consider whether the potential additional service charge is affordable for you. Also, is there a temporary or permanent subsidy to account for the difference?
How much do you need to invest?
On some schemes, there are minimum percentages that need to be invested to be able to secure a shared equity property. At best, this can mean you have lots of money left over. At worst, this can mean that you’re having to beg, borrow and steal (ed. please do not steal) to have enough money. Check the levels and your own circumstances to see whether it’s a viable option for you.
Similarly, some schemes require you to invest all or part of the 10% statutory loss compensation. If you need some money left over, this may not be for you. If you don’t, then you may be able to invest all of the money.