Shared equity schemes
Sharing the cost of buying a home
Owning a home is considered one of the great Australian dreams,
but for some people that dream may feel out of reach.
However, if you are a low to middle income earner, then a shared
equity arrangement may help you turn your dream into a reality.
Here we explain what shared equity schemes are, who can get them,
and how to find one.
What is a shared equity
A shared equity scheme is a way to share the cost of buying a
home with an equity partner, such as a private investor, not-for
profit organisation or government housing authority.
The equity partner usually contributes around 20-25% of the
property's purchase price, but could contribute more. In return,
they are entitled to a share of the property's increase (or
decrease) in value over time. The equity partner may own a
percentage of the property, and/or may charge ongoing service
Under a shared equity scheme, your deposit is much lower, or may
not be required at all. Typically you won't need to pay lender's mortgage insurance (LMI) if the
amount you borrow is 80% or less of the purchase price of the
Who can get a shared equity
Shared equity schemes are designed to help people who find it
especially hard to own a home, such as low to middle income
earners, people with disability, Indigenous people and sole parent
If you are a lower income earner you may find it hard to save a
deposit or find there's a gap between what a bank will lend you and
what a property in your area actually costs.
These arrangements usually target first home buyers, although
you may still be eligible if you've owned a home before.
Shared equity with co-ownership
In a co-ownership arrangement, the equity partner owns a
percentage of the property, based on the amount they contribute to
its purchase. For example if an equity partner pays 20% of the
purchase price, they will own 20% of the property. They will then
be entitled to 20% of the future value of the property.
To be eligible for this type of arrangement, you will need to
meet certain criteria, which may include:
- A deposit or savings history - you might need
to pay a small deposit, such as 2%, or be able to show evidence of
- Income limits - because shared equity
arrangements are usually designed for low to middle income earners,
there may be limits on the amount of income you can earn.
- Debt limits - your current level of debt may
have to be less than a set amount, or your repayments less than a
certain percentage of your income.
Co-ownership interest and fees
Interest rates on loans for shared equity
borrowers may be higher than those offered on standard home
You will only pay fees and interest on the loan for your share
of the property; however, you will be responsible for all ongoing
property expenses, such as council rates and maintenance.
Can I repurchase the shared equity portion?
You may be able to buy back your equity partner's share in the
property if your circumstances change (for example, if you repay
your principal and interest home loan, or receive a
Some contracts may require you to start purchasing the shared
portion at a set time in the future, for example 10 years after you
enter into the original agreement.
Case study: Luke and Sarah buy their first home
Luke works full-time, earning around $60,000 a
year. Sarah works part-time and earns around $30,000 a year. They
have two young children at school. They have been trying to save a
10% home deposit for several years, but rising house prices keep
pushing this goal beyond their reach.
They hear about a shared equity scheme run by a non-profit
organisation, and decide to take a look. Under the scheme, they
only have to pay a 2% deposit and the equity partner will purchase
25% of the property they buy. This means that Luke and Sarah would
only need to take out a loan for 75% of the purchase price.
As they meet all the criteria for the scheme, they decide to go
ahead. They buy a home worth $400,000. The equity partner
contributes $100,000 so Luke and Sarah's mortgage is $300,000.
The smaller deposit and relatively low repayments have made it
possible for them to move their family into a home of their
Shared equity with full
Some shared equity arrangements allow you to have full ownership
of the property. As with a co-ownership arrangement, the equity
partner contributes a portion of the purchase price (for example
25%), and you take a loan out for the balance. However, rather than
co-owning the property, the equity partner just shares in the
change in the property's value over time.
These types of shared equity arrangements may be limited to
particular types of properties, such as new builds, or certain
Full ownership interest and fees
rates offered on this type of home loan may be higher than
those on standard principal and interest home loans.
You may also be charged ongoing facility fees by the equity
partner. These could be fixed or percentage-based. You'll need to
take these fees into account when deciding whether you can afford
to buy a property under this kind of arrangement.
Repurchasing the shared equity portion
You won't have to make repayments to the equity partner on the
shared equity portion until you either sell the home or have repaid
your principal and interest loan. However, you can make voluntary
lump sum repayments.
The amount you will have to pay to buy back some or all of the
equity partner's share of the property will be calculated according
to a formula set out in your shared equity agreement.
If your income rises above the maximum qualifying level, making
you ineligible for this arrangement under the contract, the
agreement will end and you will have to buy back the shared equity
portion within the timeframe specified in your agreement.
The risks of shared equity
A shared equity scheme may help you into your own home, but
there are risks to consider:
- Negative equity - If the value of your home
decreases, you could owe more than what the property is worth.
- Capital repayments - Some schemes require you
to make capital repayments (on the equity partner's share) at set
times in the future, you'll need to know how you will fund
- Exceed income threshold - If, during the
course of the loan, your income rises above the income threshold
for the scheme, you may be required to buy back the shared equity
portion of the property.
- Repairs and maintenance - Typically the home
owner is responsible for all repairs and maintenance on the
property. If the property needed major repairs, consider how you
would pay for them.
- Higher interest - There may be a limited
number of lenders willing to offer this type of loan. This could
mean your interest rate is higher than other, more competitive,
loans on offer.
- Licensing of provider - Depending on the terms
of your shared equity agreement, your equity partner may not need
to be licensed as a credit provider under the National Credit Act.
This means that they may not have to make sure the contract is
suitable for you and that you can repay the loan without suffering
How to find a shared equity
Shared equity schemes are offered by some state government
housing authorities, not-for-profit organisations and other
for-profit organisations. They are not currently available in all
states; however, this is a developing area of home ownership and
more schemes may become available in the future.
Examples of state government shared equity schemes include:
You can also search online for 'shared equity scheme' to find
schemes available from other providers.
If you're a low or middle income earner who is
finding it difficult to buy your own home, a shared equity scheme
may help you. Make sure you understand how the scheme works and all
the costs involved before you take the plunge.
Last updated: 26 Mar 2018