Ok overpay or buy more S/O..

gabyjane

Ok we purchased a shared ownership property just over a year ago and have got 40% we are paying off, the plan was each year to buy at least 10% and move up till we got as much as poss.

But we then realsied that we can overpay up to £990 on our mortgage and have now wondered if that is the better option? we would only ba able to pay around £100 per month extra off which is the same amount it would cost us to buy another 10% and make it 50%.

Our mortgage is fixed and ends in 2010 we are paying off capital and interest and at a rate of 6.890%

Any ideas what is best to do..thanks

getmore4less

with prices dropping won't it be better to wait and buy the SO bits at a lower price?

gabyjane

Hi well we have been told that IF our property is the same value or more we will be fine and not have to pay a deposit as we will have the equity, if not we are looking at quite a bit. I am really not sure how these propertys have valued so maybe we should look into that more although wouldn't it be better to wait till our fixed deal is up to poss get a lower rate or is that a big gamble?

Bargain_Rzl

Hi gabyjane,

This is not advice as such but I thought you might like to know my own plans as I too have a 40% SO home.

My main priority at the moment is paying my mortgage down, for two reasons: one, I have never liked being in debt and in the current climate indebtedness even on my home makes me feel vulnerable, and two, I want to safeguard as much as possible of the equity in my share despite the fact that property values are still dropping. I see it purely as clearance of a debt, which is my top priority.

According to the Nationwide House Price Calculator I have only lost a fraction of a % of what I paid for my flat (the market was still rising for a while after I bought in Nov 06, and as the valuation was done in Aug 06 I was in quite a strong position). Now on standard variable rate (my initial fixed rate ended at the beginning of December, just as rates dropped) I have thrown nearly all my savings at my mortgage and have reduced my LTV to well under 75%, which means I'm now in a good position to get a good deal on a fixed rate - I'm hoping to book one towards the end of next month.

Interest rates may well be on the up by the time you come off your fixed rate; will you be able to overpay your mortgage enough to decrease your LTV substantially and qualify for better deals?

Also, as you have such a high fixed rate at the moment (6.89%) overpaying your mortgage is effectively making your money work a lot better for you than in any savings account.

The way I see it is that when I own my 40% share outright, I will automatically have EITHER no debt and a low rent for life, OR 40% equity when I buy the remainder, and either way that's a pretty secure position to be in. There is a chance I could manage to pay my current mortgage off in its entirety in 5-6 years' time.

I think the market has further to fall, and my personal feeling is that it will take a long time to recover. I don't see prices spiralling out of reach any time soon.

Bear in mind that buying another 10% will incur valuation fees etc. and won't really change the position you are in, unless you are thinking of saving up and buying an extra 10% outright rather than by extending your mortgage. And once you get beyond 50%, you're likely to find the property more difficult to sell; people who can afford to raise the mortgage to buy it will probably be just as able to buy a non-SO property.

My inclination has always been to buy the remainder all in one go or not at all, and the current market conditions have only reinforced this view.

I hope this is helpful.

LittleMissAspie

Are you paying rent on the bit you don't own?

If so, I would make a spreadsheet calculating how much it will cost you to buy the whole house:
a) by overpaying now and buying the rest of the house later
b) by buying the rest of the house now

Taking into account your interest rate, amount of rent and how much of the house you are buying at once. You could calculate various scenarios and see which is cheapest overall.

If you're not paying rent, then I think overpaying is the way to go.

Bargain_Rzl

By the way, gabyjane, if yours is the same arrangement as mine (part buy/part rent) then you might like a copy of a spreadsheet I have created to work some of these things out. It's still a work in progress and is very basic at the moment - for example, I'm trying to build in how the numbers change over time, what would happen with different property values, interest rates and RPI-linked rent changes, and what effect the cost of re-valuation and legal costs would have. At the moment it just shows how ownership of different shares would affect monthly outgoings, LTV, and so forth.

If you would like a copy of it, please PM me your email address.

gabyjane

Hi thankyou Bargain Rzl so much for the advice! It is nice to hear someone talking about S/O and not slating it for once! Yes we do pay rent on the rest of the house but if we took out another % we would just have the rent dropped and the mortgage would go up so swings and roundabouts really, i like you am quite happy buying half and then renting for however long as it is cheap BUT dh is not as keen bit not overly rushed into doing anything major at the mo! Our fees wouldn't be occured at all apparantly if the house is valued the same or more as that would cover it, or so our IFA says.. The spreadsheet would be fab i will pm you.

LittleMissAspie thanks for the advice will look into it a bit more!

Bargain_Rzl

gabyjane wrote: »

Our fees wouldn't be occured at all apparantly if the house is valued the same or more as that would cover it, or so our IFA says.

Do check the conditions with your housing association. You will probably find you are liable for the cost of an independent valuation, which is not the same thing as any valuation your lender may need to do.

My housing association states the following:

"To take things further, begin by contacting the home
ownership team to arrange for an independent valuer to
inspect your home and provide an open market valuation. If
you bought your home with someone else, both of you
need to sign the letter. You will need to pay for this
valuation at a cost of between £100 and £200.

As well as sending you the valuation of your home, the
valuer, a qualified member of the Royal Institute of Chartered
Surveyors, will include information about comparable
properties sold locally, which were used to help set the price.
If you have made improvements, for example put in doubleglazing,
you will be given a second valuation, excluding the
improvements. Your purchase price will be based on this
second valuation.

If you disagree with the valuation, we will provide you with
a form so that you can record your reasons. We will refer
this back to the valuer.

Your mortgage lender will also need a property valuation.
They may accept our valuation or insist on making their
own, charging an additional fee."

gabyjane

Ah thanks for that, yes meant to say we will be liable for that which we knew, dh knows someone who is able to do it for £50 so pretty cheap!

Bargain_Rzl

Hi gabyjane,

I've received your PM and a couple of other people's besides - sorry I haven't emailed you yet, but I've been tweaking the spreadsheet a bit to make it more useful. Hope to get it off to you tonight or tomorrow

thepeachyone

I would buy more of your equity, especially if the prices are likely to rise in the future and you want to stay in this home.