Shared Ownership vs. Shared Equity? What are the differences?

At a time when buying your first home is out of reach for many people, Shared Ownership and Shared Equity stand out as two shining lights of affordable homeownership. These government-backed schemes are a blessing to people who are struggling to afford a home on the open market. However, their similar-sounding names mean they’re often easily confused.

Struggling to tell the difference between Shared Ownership and Shared Equity? With our guide, you can cut out the confusion and work out what’s best for you.

What is Shared Ownership?

Shared Ownership is a part-buy part-rent scheme where you buy a share of your home, while paying rent on the share owned by your housing association. Over time, you’ll also get the option to buy more shares of your home through a process known as ‘staircasing’.

What is Shared Equity?

The Shared Equity scheme enables home-buyers to pay a smaller deposit towards their home (usually 5%) while taking out an equity loan for the rest of the deposit (usually 20%). Alongside this, you would need to take out a mortgage for the rest of the property.

Eligibility

Shared Ownership is mainly directed at first time buyers who would otherwise not be able to afford a home on the open market. To start enjoying the benefits of the scheme, you need to have a household income of less than £80,000 in the UK, or less than £90,000 in London. However, the scheme isn’t just restricted to first time buyers. You can still take part in Shared Ownership if you previously owned another property which has since been sold, or you’re in the process of selling your current home!

Shared Equity homes are also open to a wide variety of people. Alongside first time buyers, the scheme is available to people who have previously bought a property but are looking to move home.

Deposit cost

The greatest benefit of Shared Ownership is it offers you a quick and often more affordable route to homeownership. Why? Because you only need to put down a deposit towards the share of the home that you are buying, not the full market value of the property. If you purchase a 25% share of your property price, you’ll then only need a deposit that is approximately 10% of this share. Although you will have to pay rent towards the 75% share still owned by your housing provider, this can often work out less than it costs to rent privately.

Shared Equity also makes it possible to buy a home with a smaller deposit, however, you’ll need a deposit that is at least 5% of the entire property price. Because of this, Shared Equity can be slightly more expensive in the short term.

Ownership

As the name suggests, Shared Ownership is a scheme where you begin by owning a share of your home. You could start with a share as small as 25% (or 10% if buying through the new Shared Ownership model), which means you’ll rent the remaining 75% share that you don’t own. This can change over time if you choose to staircase your home, with additional shares that can take you up to 100% ownership in most properties.

On the other hand, Shared Equity starts with you owning 100% of your property straight away – there’s no need to pay an additional rental fee. However, you will need to pay your equity loan back at some point, and the price of the loan can change if property prices increase.

Property type

Whether you’re using Shared Ownership or Shared Equity, you’ll have plenty of scope to find the perfect home for you. Shared Ownership is available on stylish new-build apartments and houses, but you can also find yourself a resale home with plenty of character and charm. With Shared Equity, you’ll also get to take your pick from a variety of properties and housing developments.

Which scheme is right for you?

Deciding between Shared Ownership and Shared Equity will ultimately depend on your financial circumstances, and how eager you are to land your first home. Shared Ownership definitely stands out as the best option for first time buyers who need a little extra help to afford their first home. It also offers a speedier route to homeownership, as you’ll only need to save up for a smaller deposit. However, if your financial position allows it, Shared Equity is a great option for people who want to own 100% of the home right away.

Looking for an affordable route to the property ladder? Share to Buy is the go-to place to learn about the best affordable home options, with Shared Ownership, Shared Equity, and so much more! With plenty of home-buying schemes to choose from, find your dream home today by checking out our available properties.