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Flexishare Up The Property Ladder

Non-conforming mortgage specialist Advantage, part of the Morgan Stanley Group, has brought out two mortgages under the Flexishare home ownership plan.

Flexishare is a hybrid of a conventional mortgage and a shared equity scheme that is designed to enable first-time buyers, key workers and young families to get on the property ladder. It is available for loans up to 95 per cent of valuation and comprises three parts.

One is a conventional two or three-year stepped fixed-rate mortgage for up to 80 per cent of valuation. The second part is a lower fixed rate residential ownership loan for 15-35 per cent of valuation, which is fixed at 2.99 per cent for the life of the loan. Together, these parts produce a lower blended mortgage rate, enabling the borrower to increase their purchasing power.

The final part of the mortgage is the Advantage share. The lender will take a share in any increase in the value of the property at the same percentage as the second part, the residential ownership loan.

For example, if the mortgage is taken out to buy a £100,000 property, the borrower’s deposit will be 5 per cent of this – £5,000. The conventional mortgage part could be £65,000, which would then mean the residential ownership loan would be £30,000. If this property was subsequently sold for £125,000, the borrower’s equity would be worth £22,500 and the lender would have a £7,500 share in the property. The repayment of the conventional mortgage part would remain at £65,000 and the residential ownership loan would also remain the same at £30,000.

The benefit of this type of arrangement is that overall, repayments should be lower than a conventional deal as part of the loan is fixed at a lower rate for life. The lender will only have a share in the property if it is sold at a profit, but this profit will always be less than the borrower’s share of the profit.
This is an innovative product, which could be useful in enabling people to get a foot on the ladder, while still allowing the lender to profit. However, it is more complicated than a conventional mortgage and borrowers will experience a jump in repayments due to the stepped rates, particularly as these apply to the biggest percentage of the loan.

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