Equity Share Mortgages
Equity share mortgages are designed to help those who would otherwise not be able to make their first move into the market to buy a property with the help of a mortgage that is affordable to them. Under such arrangements, the lender or another body takes a stake in the property, thereby reducing the size of the required mortgage and in doing so reducing the monthly repayment.
The most common version of this arrangement is the shared ownership mortgage. The buyer acquires a stake in the property, often 25% or 50% of the value of the property. The remainder is owned by the lender, or more often a housing association. Housing associations are not-for-profit organisations that are set up in order to provide affordable housing for sale or rent (or an element of both). When the part share is acquired, the borrower pays a mortgage repayment based on the capital borrowed and pays rent to the owner of the remainder of the property. If the property is sold, the borrower is entitled to capital from the sale on a pro rata basis.
The shared ownership mortgage is flexible in that the borrower can purchase additional shares in the property. For example, the stake in the property can be increased from 25% to 50%, then to 75% and eventually 100% if desired. This process is sometimes referred to as 'staircasing'.
Shared ownership is often organised on a partnership basis between lenders, housing associations and local authorities. The earliest schemes were established during the late 1970s by the (then) Abbey National Building Society in cooperation with its Abbey Housing Association and the Tower Hamlets local authority in London. Further schemes were introduced during the urban regeneration initiatives in Bristol , Liverpool and other major cities in the early 1980s. Today there is a small but established secondary market for properties sold on a shared ownership basis.
Shared ownership also works in reverse under some lenders' mortgage rescue schemes for borrowers experiencing financial difficulties. In appropriate cases, the lender may be prepared to permit the borrower to sell a stake in the property to a housing association, reducing the monthly repayment to the lender and replacing this with a rent payable to a housing association, which then owns the remaining share. Lenders tend to be cautious and selective when assessing such proposals, as in many cases the new arrangement may fail to address the underlying financial problems of the borrower. There is also the problem that borrowers may perceive that they are being treated unfairly when the package is made available to some but not others for reasons that are not fully understood.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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