Shared ownership vs Equity Loan

newbuy

Hello,

I am looking to buy a new build property in London and have the option of buying a 75% share (minimum) or taking an equity loan of 20% and buying the whole thing.

Rent would be £150 if shared and service charge £130 either way.

I have a deposit of £50k. Property worth £250k

Would I get a better mortgage deal with the equity loan?
Any advice as to which option would be best?

kingstreet

Does the shared equity option see the property change from leasehold to freehold, or is it leasehold either way? Freehold would be a major bonus.

Presumably, it's HTB - Equity Loan, so that's fee-free for five years, but if you get a 20% loan, you have to repay 20% of the property value when you sell, at the end of the term, or voluntarily, so it could cost you more if property values increase.

You need to have an exit strategy.

You'll get a better rate than for SO and you'll have more lenders to choose from, as many shun shared ownership.

newbuy

Thank you!

It would remain leasehold and yes the HTB - Equity Loan.

Perhaps if I saved the £150 rent per month that would not be required (£9k in 5 years) then using that to pay off a chunk of the Equity loan would reduce the overall cost?


I found this info regarding the equity loan:


"The admin fee will start at 1.75% of the loan after 5 years

The admin fee will increase every year by any increase in the Retail Prices Index plus 1%."


I am a little confused about how this works.

kingstreet

You pay 1.75% of the equity loan in fees in year six.

If inflation runs at 5%, in year seven the rate will be 1.86% as it goes up by inflation plus 1% (as 6% of 1.75 is 0.105, making the new rate 1.86).

If inflation is 5% again, in year eight it would be 1.97% and so on...

There's an example in the guide;-

http://www.homesandcommunities.co.uk/sites/default/files/our-work/help_to_buy_buyers_guide_sept_2013.pdf