Shared Equity (Scotland): what is it and how does it work?
Find out what you need to know about the Scottish housing scheme with this guide.
What is shared equity
There are two shared equity schemes in Scotland:
New Supply Shared Equity scheme
Open Market Shared Equity scheme
New Supply is for people buying new build homes for the scheme.
Open Market is for any home on the open market that’s seen as suitable.
In both cases, the Scottish government buys a part of your property and hold the equity until you sell.
It’s not a loan, so you do not have to pay it back and are not charged interest.
How does shared equity work?
New Supply lets you buy a stake in a property between 60% and 80%.
The Open Market scheme lets you buy between a 60% and 90% stake.
In both cases, you often fund your share with a mortgage.
The Scottish government buys the rest. So if you buy 75% of a home, it will help with the other 25%.
You do not have to pay any interest or rent on the government share.
The government profits if your house price goes up.
Who's eligible for a shared equity scheme?
To use the shared equity schemes you need to show you cannot afford a suitable home without help.
You must also be able to afford a mortgage on your share.
You can apply if you're:
a first time buyer
over the age of 60
a social renter
disabled
a member of the armed forces
an armed forces veteran that left in the past two years
a widow, widower, or the partner of service personnel who died while serving in the past two years
The New Supply version is for to people who’ve owned a home before but have had their situation change. For example, if they've separated from a partner.
How to apply for shared equity
Applying for the Open Market Shared Equity scheme
To apply contact Link Housing, a registered social landlord on 0330 303 0125. Or email lift@linkhaltd.co.uk.
If you’re eligible you'll get a 'passport letter'. It'll say you can now look for a home under the scheme.
It will also tell you the highest price you can pay and the maximum size of the home you can buy. It'll also guide you through the next steps.
Finding a home
Once you find a home:
the seller will usually give you with a Home Report, which outlines how it’s valued
find a solicitor to help you buy the home. The Scottish government will have its own solicitor to deal with its equity share
pay legal costs, registration fees. As well as any land and Buildings Transaction Tax costs
Applying for the New Supply Shared Equity scheme
There's a list of associations that are part of the New Build scheme on the Scottish government website.
You’ll need to contact them to see what’s available and to get and advice on applying.
The association will see how much you can afford to pay, including the size of the mortgage you’ll likely be able to get.
After that, they'll write to you to tell you if you’re eligible.
Can you increase your share?
You can increase your share if your financial situation changes with both schemes.
You can buy up to an extra 5% share from the government every year until you own 100%.
Golden share
You cannot buy 100% if you've signed a clause that ensures the government keep a share. This is a ‘golden share’.
If you're in an area where there are few affordable homes available the government might keep a share. This will be a 20% share with New Supply and 10% with Open Market.
Selling your home on the shared equity scheme
You can still sell the property if the government still hold a share. But the government will share in any house price increases or decreases over that time.
For example:
You buy a home for £100,000 with a 20% loan from the Scottish government (£20,000)
You sell the home for £150,000 several years later
The government gets £30,000 (20% of the sale price)
Maximum price thresholds (Open Market only)
With the Open Market Shared Equity scheme, you cannot buy a home that's over a ‘maximum threshold’ price.
The threshold price depends on the size of the property you're buying. You can find it on the Scottish government’s website.
More about shared equity
As of 1 November 2019, 12 mortgage lenders were offering mortgages for the Open Market scheme. These are:
Bank of Scotland
Barclays
Capital Credit Union
Glasgow Credit Union
Halifax
Leeds Building Society
Lloyds Bank
Nationwide
Natwest
Scottish Building Society
Skipton
TSB
To remortgage your home, you’ll need to contact the association or local council who handled your purchase.
You're responsible for paying any admin costs. Even if the Scottish government own a stake in the property.
You’re often not allowed to sublet properties bought using one of the schemes.
Your property must be your main home.
You’re responsible for the same costs as other homebuyers. Costs include council tax, insurance, repairs.
If you choose to sell, the total you’re due will vary depending on the:
price at which you sell your house
size of your equity stake
amount you’ve paid towards the mortgage
If you have a 60% share of your house, you’ll get 60% of the price of sale when you sell it. The Scottish Government gets the other 40%.
This means you'll also benefit if the value of your home goes up after you bought it.
If you paid £200,000 and go on to sell at £220,000, you’ll still get the same equity stake percentage you went in with. In this case 60%. The government would benefit in the same way.
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Sources
(1) MyGov.scot (Open Market Shared Equity)
(2) MyGov.scot (New Supply Shared Equity)