Shared equity mortgages explained

Key takeaways

• Shared equity mortgages involve the buyer purchasing a portion of the property, while a third party – typically a housing association – funds the remaining share through an equity loan.

• The equity loan can be repaid over time and if the property value increases, the repayment amount increases, and vice versa

• With shared equity, the buyer owns the whole property but has a loan covering part of the purchase. It is different to shared ownership where the buyer owns only a share of the property.

• Unfortunately, government shared equity schemes are not currently offered, but developers may have their own schemes

What is a shared equity mortgage?

A shared equity mortgage is a type of mortgage used with a shared equity home-buying scheme.

If you buy a home using a shared equity scheme, a third party – such as a developer, local authority or government – will lend you part of the property’s value (typically 20-30%) as an equity loan.

This will allow you to purchase a home with a smaller deposit (typically 5%) and a mortgage for the remaining portion.

Shared equity can make getting on the property ladder easier as you won’t need to save a massive deposit.

The equity loan is secured as a second legal charge on the property, after your mortgage.

How do shared equity mortgages work?

If you participate in a shared equity scheme, you will need a shared equity mortgage – you won’t be eligible for a mainstream mortgage. Not every lender offers shared equity mortgages so it’s best to go to a broker to find the best deal.

Shared equity allows buyers to afford a property with a smaller deposit and potentially offers lower mortgage payments.

For example, let's consider a property valued at £200,000.

• The buyer contributes a 5% deposit (£10,000)

• An equity loans covers 20% of the purchase price (£40,000)

• A shared equity mortgage is taken out for 75% (£150,000) of the purchase price

As a result, the buyer becomes the legal owner of the property and has a mortgage for £150,000. No interest is charged on the equity loan for a certain period, typically the first few years.

How do I pay back a shared equity loan?

You can repay a shared equity loan in a few ways:

• When you sell the property – you repay the same percentage you borrowed (e.g. 20% of the home’s current value, not the original amount)

• Staircasing – you can pay back chunks of the equity over time, increasing your ownership share

• End of the term – the loan must be fully repaid by a set deadline (often 25 years)

• Remortgaging – you can take out a new mortgage to pay off the equity loan

👉 Important: the amount you repay rises or falls with the property’s value, not the original loan. Going back to the above example, if the property price rises from £200,000 to £250,000, the 20% equity loan will increase from £40,000 to £50,000 (20% of £250,000).

Conversely, if the property decreases in value, the equity loan costs less to pay down.

What is a Help to Buy equity loan?

The best known shared equity scheme was run by the Government and called ‘Help To Buy: Equity Loan’. It was available from April 2013 until March 2023 in England and Scotland. Applications are no longer open.

If you have an equity loan under the scheme, the Government website has details of how the scheme works and how to repay the loan.

A similar Help To Buy scheme in Wales is still running but it’s due to end in September 2026.

How much can I borrow with a shared equity mortgage?

The amount you can borrow with a shared equity mortgage in the UK depends on various factors such as your income, credit history, and the specific terms of both the equity loan scheme and mortgage product.

Generally, lenders offer a mortgage covering around 75% of the property's value, while the remaining share is provided through your deposit and the equity loan.

It's important to consult with lenders and housing associations to determine the specific borrowing limits and eligibility criteria for shared equity mortgages.

What are the pros and cons of shared equity?

Shared equity has both advantages and disadvantages, including:

Pros

• Smaller deposit: You can normally get a shared equity mortgage with a deposit of 5% of the property price.

• Quicker access to home ownership: Lower deposit requirements mean you can get on the ladder sooner, rather than waiting years and risk being priced out of the market

• Higher mortgage approval rate: Lenders may be more likely to approve your mortgage because the loan is smaller

• Flexibility paying off the equity loan: You can repay the loan when you have spare cash, when you remortgage, at the end of the term or when you sell

Cons

• Difficulty moving house: It can be difficult to move house with an equity loan in place as you may need to repay the loan in order to move.

• The loan may increase: If your property value increases, the amount you owe on the loan will rise too.

• Subletting restrictions: There may be restrictions on renting out or subletting the property

• Limited choice: There are not many equity loan schemes available and those schemes in operation may strict eligibility criteria

What else should I consider when looking into a shared equity mortgage?

Here are a few more things to consider if you're thinking about a shared equity mortgage:

What’s the difference between shared ownership and shared equity?

It can be confusing but shared equity and shared ownership schemes differ in a key way. With a shared equity scheme you own all of the property, albeit with the loan making up part of your deposit.

With a shared ownership scheme, you only own a portion of your home. The remaining share is usually owned by a housing association and you’ll be required to pay rent on the share you don’t own.

You can read more about shared ownership schemes in this guide.

How do I apply for a shared equity scheme?

The government does not currently offer a shared equity scheme, but sometimes they are offered by:

• Property developers – to sell properties they have built

• Local authorities – to help local residents on to the property ladder

Terms and conditions of shared equity schemes will vary so make sure you know what you are getting into. The schemes may only be available in limited areas and on certain property developments within those areas.

To apply you must be 18 or older, usually be a first-time buyer and able to afford the fees and interest payments on your mortgage. It may be worth speaking to a mortgage broker to find out what shared equity schemes are available and also consider independent financial advice.

Can I sell my shared equity house?

Yes, you can sell your home with a shared equity mortgage. However, you will need to share any profits from the sale with the lender as per the terms of the shared equity agreement.

There may also be specific conditions or restrictions you need to meet depending on the particular scheme you are a part of.

Can I rent out my shared equity home?

No, you are not generally allowed to sublet a shared equity home according to the terms of most shared ownership leases, as it is intended for your own occupancy.

Exceptions might be made under exceptional circumstances and would require approval on a case-by-case basis. You can, however, often have lodgers if you have permission and ensure they adhere to the lease's terms and conditions.

Compare mortgages with MoneySuperMarket

If you’re a first time buyer, then start your search by comparing mortgages with MoneySuperMarket.

By providing some brief information, such as the loan amount and property value, we will show you a list of potential available mortgage deals from lenders across the market.

You can compare interest rates, fees, and overall costs to find a mortgage that suits your needs and budget.

Our other useful guides

Remortgage Q&A | MoneySuperMarket

What Is Conveyancing? | MoneySuperMarket

How Much Does It Cost to Buy a House | MoneySuperMarket

Your home may be repossessed if you do not keep up repayments on your mortgage.