Compromise and buying a home go hand-in-hand. Finding a house that ticks all your boxes, including location and size, can seem impossible. One way to boost your borrowing power – and tick some more of those boxes– is to consider a shared equity loan.

HomeStart’s Shared Equity Option allows you to share the cost of your home with an equity partner, meaning your deposit doesn’t need to be as big and, in some cases, the ongoing costs are reduced.
It can also mean that a house with a much-needed third bedroom or a property so much closer to work isn’t so far out of reach. In fact, University of Adelaide research last year found that suburbs where shared equity options existed had an eight per cent higher rate of home ownership.

How do they work?
A shared equity loan helps you borrow a greater amount of money in return for sharing part of the capital growth (the increase in value over time) in the property. HomeStart recently launched the Shared Equity Option, which allows eligible customers to borrow up to 33 per cent more, without increasing repayments, when purchasing an established property. It can provide access to additional funds once you’ve reached your borrowing limit on a HomeStart loan, without changing your monthly repayment.

What are the benefits of a shared equity loan?
It gives you a greater choice of homes in a wider range of suburbs. By getting more of the features you want in a home, you’re less likely to need to upgrade to a bigger property in a few years, saving you thousands in upfront costs. It could also help reduce the need for renovations because you haven’t had to compromise on a house that doesn’t suit your current – or near-future - needs. If you’re a single parent, this loan option could allow you to stay in the family home for longer by giving you a viable refinancing option.

What should I be mindful of?
The main feature to be aware of, compared to a standard home loan, is that you have to share any increase in the value of the house with your lender. This includes any value you add through renovations or improvements. While the capital gains is shared, the ultimate responsibility for the up-keep and maintenance of the property is with you as the owner.

But, remember that there are options available to pay out the equity component. You might also be wondering what happens if there are sharp rises or falls in the property’s value. In terms of sharing the property’s appreciation in value, this is usually based on the ratio between the shared equity loan and the purchase price, so that there is a very clear understanding between the borrower and the lender from the outset.

What if my circumstances change?
The shared equity option allows you to share in the loss or gain when selling and share in the gain (not loss) when you are refinancing. Down the track, as your financial position improves, you have the option to ‘buy back’ some or the entire shared equity loan. This will lets you keep more of the equity gains when the property is eventually sold. You can also retain the Shared Equity Option for as long as you like. So long as you comply with your loan obligations, it does not need to be paid out until you either sell the property or refinance.

Takeaway message
Sharing a portion of your property with an equity partner can help get you into the house or suburb you want without compromising the key house-hunting criteria. Contact HomeStart to find out more. Terms conditions and eligibility criteria apply.