What is Shared Equity Mortgage?

Have you ever imagined owning your home only to be met with the harsh reality of sky-high property prices and hefty loans? It's a common story for many of us dreaming of a place to call our own in this diverse land. But what if there was a way to make this dream more achievable without emptying your 'khaata,' offering a path to homeownership that's more feasible and financially sound? 

There is a way out, but before getting into the details of the topic, let's talk numbers for a moment. 

A Peek into the Property Scene in India 👀

In 2017, the real estate industry in India was valued at about ₹4.15 lakh crore, and experts predict it could reach an impressive one trillion dollars, around ₹83 lakh crore by 2030. 💸

The real estate industry is clearly on the rise, and that often means property prices are going up, too! 📈 Take a look at the graph below to check out the property prices in the 8 major cities of India. 👇

Seeing how the real estate market is moving in an upward trajectory, and house prices are climbing in big cities across India, it's a good time to explore different ways to own a home. One way that's catching the eye is this thing called shared equity mortgage. Let's check out what it is and how it might just be the key that unlocks the door to your dream home. 😄

What is Shared Equity Mortgage?

A shared equity mortgage is when someone, like an investor or a company, chips in to help buy a home. It's a smart way to co-own a property with someone else, lightening the financial load and making it easier to afford the place you want.

A usual scenario is when, let's say, a housing association or an investor pitches in some money towards buying the property. This helps cut down the amount you need to borrow for a mortgage. Later, when the property gets sold, or after a set time, that investor gets back a slice of the selling price, depending on what the property's worth at that time.

Moving on to…

Grasping the Concept with an Example for Clear Understanding

We have a young couple looking to buy a home in India using a shared equity scheme. Say the property costs ₹2 crore, and the couple can only manage a down payment of ₹50 lakhs. The property owner isn't their relative, so they need more money. (Not that their relatives would've given that much, but you get the idea, right? 😉) 

Here's where an investor helps. He puts in another ₹50 lakhs, so now, the couple needs less money from the bank for the house.

If the house's value goes up to ₹3 crore later on, the investor gets a share of that extra value, let's say about ₹10 lakhs.

So, the couple and the investor work together to buy the house, and when it grows in value, the investor gets a little bit of that extra sum. It helps the couple buy the house and gives the investor a share in its growth.

Now, let me take you through the…

Advantages and Disadvantages of Shared Equity Mortgage 

Advantages of Shared Equity Mortgage:

1. Lower Initial Cost: Shared equity mortgages reduce the amount of money needed upfront to buy a property. This is beneficial for those who can't afford a large down payment, making homeownership more accessible.

2. Potential for Property Appreciation: Investors who contribute to shared equity arrangements may benefit from the property's potential appreciation, allowing them to earn a share of the increased property value when it's sold.

3. Collaborative Homeownership: Shared equity schemes foster collaboration between investors and homebuyers, sharing the financial responsibility of owning a property.

Disadvantages of Shared Equity Mortgage:

1. Sharing Property Appreciation: As the property value increases, the investor in a shared equity mortgage gets a slice of the gain. This means the homeowner shares the profit upon selling the property.

2. Potential for Disagreements: Shared equity arrangements involve complex agreements and shared profits, which could lead to disputes or disagreements over the property's management or sale.

3. Limited Independence: In shared equity, decisions regarding the property may need mutual agreement between the homeowner and the investor, which might restrict the homeowner's independence in managing or selling the property.

Coming to the last segment of the article.

How can you tell if a Shared Equity Mortgage is your cup of tea?

It is simple. You need to check for the following pointers:

• Consider Your Financial Situation: Are you unable to afford a big down payment? 

A shared equity mortgage might help reduce the upfront costs and make homeownership more achievable. ✅

• Future Plans: Do you plan to stay in the home for a long time, or is it a short-term plan? 

Shared equity might work well if you're not in a rush to sell, as it shares the property's appreciation with the investor. ✅

• Comfort with Shared Ownership: Are you okay with sharing the profits (or losses) when the property value changes? 

With shared equity, an investor shares in the property's value changes, which could affect your ultimate gain. ✅

• Agreement Terms: Check the terms of the shared equity agreement. Make sure you're comfortable with how decisions about the property will be made and how profits will be shared.

The Bottom Line

Shared equity isn't just about splitting costs. It's a shared journey, allowing you to own a piece of the "ghar ka sapna" without exhausting your savings all at once. It's a great choice for many, but it's smart to consider the ins and outs before taking the leap.

So, your dream of having your own "naya makaan" can soon be a reality! 🏡