As with the schemes described above, the ‘Partnership Mortgage’ (launched in October 2012) combines a traditional mortgage with an interest-free loan.
This is the only product of its kind in the market and it’s only available if you have a large deposit.
However, there are some key differences:
- It requires a significant deposit.
- It’s available for remortgages as well as for first-time buyers and home movers.
- When you sell your home or repay the loan, you repay not only the interest-free loan but also a share of the increase in overall value of your home since you took out the mortgage.
Note the term ‘partnership’ is used for this product, as it doesn’t have any business relationship connotations.
- Requires a 20% deposit (meaning you need at least 80% equity in your home if remortgaging).
- Two lenders are involved – you take out a 60% mortgage on a repayment basis as your main mortgage and a 20% interest-free loan (the Partnership Mortgage).
- You repay the 20% Partnership Mortgage in full at the end of an agreed term or if you decide to sell or remortgage the property.
- At the time of repaying the Partnership Mortgage. you must also pay the lender 40% of any increase in value of your whole property since you took out the mortgage.
For example, you buy or remortgage a home worth £200,000. You pay for this as follows:
- Deposit of 20% – £40,000
- Repayment mortgage – £120,000
- Shared equity (Partnership Mortgage) loan (ten-year term) – £40,000
- Total £200,000.
After ten years your home is worth £300,000 – an increase of £100,000.
If you’re staying where you are, you need to repay £80,000 to the Partnership Mortgage lender (the original loan plus a 40% share of the gain in value of the property).
If you decide to sell and move on at this point, you repay the loan out of the sale proceeds. But you only get to keep £60,000 of the £100,000 gain compared with the full amount had you had a traditional mortgage.
This is because you need to pay £40,000 (40%) of the profit to the Partnership Mortgage lender.