Shared Equity Versus Discounted Purchase Price

Two different structures, often confused

A discounted purchase price and a shared-equity arrangement both reduce what you pay upfront, but they are not variations of the same idea.

Discounted purchase price. You buy the whole property at a price below market value, and the discount is permanent. You own 100% of the home, subject to whatever conditions the discount carries — a restriction on resale, an occupancy requirement, or a period during which the home must remain affordable.

Shared equity. You buy part of the property's value and another party holds the rest. Help to Buy works this way: a minimum 2% deposit, a government contribution of up to 30% for an existing home or 40% for a new one, and the government sharing proportionally in changes in the property's value. You own a share, not the whole.

There is also a third variation: a scheme where a provider retains an interest and charges rent or a fee on its share, which behaves more like a part-purchase than a discount.

How they compare on the things that matter

• Upfront cost. Both reduce the deposit needed. A discounted price reduces the loan as well, because the price itself is lower.
• Ongoing cost. A discounted purchase leaves you servicing a smaller loan. Shared equity may involve no rent on the government's share, but the share still has to be dealt with eventually.
• Exit. Sell a discounted home and, depending on the conditions, you may face restrictions on price or buyer. With shared equity, you repay the other party's share of the value at the time you sell or buy it out — so if values rise, so does the amount owed.
• Obligations. Both can carry occupancy requirements. Ignoring them can cost you a concession, a benefit or money at settlement.
• Flexibility. Buying out a share usually requires a valuation and a lender willing to fund it. Selling a discounted home may require the provider's consent.

The comparison people get wrong

A 30% shared-equity contribution and a 30% price discount look similar on day one and behave very differently over ten years.

If the property rises 20%, a shared-equity buyer owes more on the other party's share, while a discounted-price buyer simply owns a home that has risen. If the property falls, that reverses. Neither is automatically better; the question is what you can service, what you plan to do next, and how much certainty you want.

Work out three numbers before choosing: what you can borrow, what the monthly repayment looks like at a stress rate, and what you would owe or receive if you sold in five years under each structure.

When each tends to suit

• A discounted purchase suits a household that can service a loan on the discounted price and intends to stay for a period, and where the resale conditions are acceptable.
• Shared equity suits a household whose borrowing capacity is the binding constraint and who values a lower entry point, accepting that the other party shares in future growth.
• Neither suits a purchase made only because the entry cost is low, on a property that fails the commute, the space requirement or the conditions.

Questions to ask about either

1. What exactly do I own, and what does the other party hold?
2. How is the other party's share valued, reviewed and repaid?
3. What restrictions apply if I sell, and for how long?
4. What occupancy conditions apply, and what happens if my circumstances change?
5. Which government benefits can be combined with this arrangement?
6. Will my lender accept it?

What to ask before buying an affordable housing property extends that list, and understanding government home buyer assistance covers Help to Buy's current published terms. EWH is a private service, separate from government programs.