Shared Equity Mortgage VS Mortgage.

samo8076

Hi everybody,

My girlfriend and i are just about to purchase a new build property on a shared equity scheme 80%/20%..we have had the mortgage agreed in principle so we can go ahead and place a reservation fee on the property.

We have the deposit and all fees covered so are good to go. However my girlfriends dad wanted to go over the terms/details of the mortgage etc (which is fair enough)..before i continue il give you a break down of the property costs/mortgage etc.

Property Price - £138,000
80% Price - £111,000
Deposit - £7000
Gifted deposit from builder - £4000
Mortgage needed - £100,000

we will be paying a fixed rate (4.7% over 3 years) of £501 pm which is pretty good i think...however her dad found another mortgage with the same building society at a fixed rate (4.2% over 2 years) of £417 pm which is a lot cheaper.

The thing is though the quote he got is for a normal mortgage of £100,000, where as the shared equity mortgage we were going with covers all bases etc and is tailored for this purchase.

Basically i want to know if it would even be possible to apply for the mortgage he found and still be on the shared equity? And also a comparison/differences between the two types would be most welcomed.

Thanks.

HappyMJ

Personally, I'd go for the 3 year fixed rate mortgage. It might seem more expensive today but rates will go up hopefully before 3 years and you'll be quids in. A 4.7% mortgage over 30 years comes to around £519 per month and a 4.2% mortgage over 30 years comes to £489 per month so check your figures.

Oh, and another thing don't take out a 30 year mortgage. It's far too long. 25 years would be better or even 20 years. If you pick 20 years today and rates go up later you can extend the term to 30 years but if you select a 30 year term you will have no flexibility.

saverjustice

You should obtain an independent valuation of the property.

kingstreet

Lenders have products to be used only for shared equity or shared ownership cases. Other products will be available to other types of homebuyer.

You need to check which products are available and which ones aren't.

No good looking at the best rates if they are only available upto 60% LTV on standard purchase only.

shortchanged_2

What are the terms of the shared equity mortgage?

Have you considered that you may well go into negative equity over the next few years?

In which case hopefully you won't need to move or you may run into trouble.

samo8076

As far as im aware i can either buy the house 100% (which we cant afford to raise a big enough deposit and the monthly payments) or we go on the shared equity which is what we want to do. Her dad just wanted to exhaust all options for peace of mind im guessing..

@Shortchanged we wont be moving for a very long time so this has not crossed our minds

kingstreet

Make sure your potential lender knows it's shared equity AND builder gifted deposit.

samo8076

They do know, we went with the recommended lender which are also the ones that have offered the mortgage to us in principle.

saverjustice

I have been in the financial services sector since 1985 and until 2002 I arranged many mortgages, almost every single variation of 'shared equity' has failed to meet the expectations of the house purchaser for one reason or another.

My main question is this, is the house really worth £138,000?

Other questions would include what else the builder is throwing into the deal.

samo8076

@saverjustice...yes the house is worth £138,000 judging by similar properties in the area..the builder is offering us quite a lot that we wouldn't be offered if we were going 100%..

saverjustice

You should still go for an independent valuation.