Shared Ownership 'Staircasing'...Advice?

ironman1

Anyone else bought half a property and paying rent on the rest of it?

Me and the girlfriend did it last December and are thinking of buying the other half, or at least another 25%.

We bought half as the two bed apt was in a lovely area and as it was £195,000 we couldn't afford the deposit. We still paid something like £10k deposit and at 22 it was quite an ask.

You only get two/three attempts at buying the full property so we want to make sure we do everything right.

Can anyone advise us please, someone maybe who was in a similar situation. At the moment we are overpyaing the mortgage side by around £300/400 a month which is more or less double the rent so we feel we could manage it.

Thanks in advance to those that can help!

ironman1

A little bump for the day mob. Is this in the right section? Cheers!

Richard_Webster

You will have to work roughly want the extra percentage will cost and then investigate whether or not you can get a mortgage for the extra amount.

The lender will look at the loan to value ratio of the total value of the percentage including the loan you already have. I am assuming that you have no further lump sums in cash you can put in.

For instance if the property is now only worth £180K then a half share will cost a further £90K. So you need to check that your lender would lend you that extra on your incomes.

Also, however, if you have managed to get your borrowing down to say £83K from £87.5K by overpaying, then you would be borrowing £83K + £90K = £173K which is 96.11%. Very unlikely that a lender would now be prepared to do that.

If the value has stayed static then on the same figures it would be £83K + £97.5K = £180.5K which is 92.56%, still very iffy percentage wise.

If the value has increased you would have to find a larger mortgage but the LTV ratio might begin to get more favourable.

If you only buy another 25% the using the same assumptions with the value at £180K you have £83K + £45K = £128K which is 94.81% of £135K (75%) or at £195K full value you have £83K + £48.75K (25% of £195K) = £131.75K which is 90.09% of £146.25K (75% of £195K). So even here unless the property has gone up in value or your lender is being unusually generous LTV ratio wise, it will be marginal.

You are doing the right thing by overpaying. Obviously I have guessed at roughly what you might still owe on your present mortgage, but hopefully you can redo the sums using the real figures and whatever information you have about the present 100% market value of the property. If it works LTV percentage wise then you can check if your lender will actually lend the amount you want on its income ratio criteria.

Don't make a formal application for a mortgage yet, because you will then have to approach your Housing Association to ask for a formal valuation of the 25% or 50% share. If that comes out more or less what you expected and the other figures stack up, you then you can proceed with your mortgage application and get a solicitor involved.

ironman1

Thanks, I'll have a better read of your post when I get home from work tonight but it seems you know your stuff.

About two months after we moved in the price of the flat below us, which was still empty, dropped down in price by about 25k, which wasn't nice! I'm gonna try and find out more but from what I gather the prices of where I live have dropped around 25/30k. Whether they have gone up I dont know but I would imagine the prices will increase next year.

That is the main reason we want to buy more shares now, before the price goes up. I think in the future we should be able to sell it on. It's in a nice part of london, next to a station and the actual flats, inside and out, are impressive.

Can I just ask, say we do crack on and attempt to buy more shares, do we go through the same arrangements as before. such as proving our income with the banks for example?

I know we'd have to get a solicitor involved again and pay for a valuation of the property, but that's about all I really understand.

Maybe the time isn't right to buy more shares but instead of overpaying, I'd rather use the rent money towards the mortgage.

tek-monkey

Some schemes have rules about the value of the property, for example they may say for the first 5 years you always pay a minimum of what you purchased at regardless of current value.

ironman1

I'm 90 per cent sure thats not the case with our housing association. But i'll need to check that out. I remember the person who sorted our moving in date, handed over the keys etc, said to us how we should look to buy more shares next year, as in this year, if we could as the prices may go down.

Didn't think of that though, you may be right

Richard_Webster

Sorry if my post looked complicated but you need to understand the way the figures work.

Basically if prices go down the Loan to Value ratio goes up so that the amount you would need to borrow to finance the purchase of the extra share (assuming you have no lumps sums of your own to put in) becomes a higher proportion of the total value to a point where you would not get a loan. Few lenders are lending 90% let alone 95% and you are likely to be over those thresholds.

If prices go up the LTV ratio becomes less important but the amount you would have to borrow goes up and might be unattainable for that reason.

ironman1

I'd rather avoid paying a lump if possible. We only have £7,500 in savings after paying the deposit and doing the place up, furniture etc. Plus instead of saving much since we've overpaid instead.

Maybe we'd be better off saving a bit more before we attempt to buy more shares?

Then again where does it stop. We are only just 23 and don't earn bundles.

Bongedone

I have a shared ownership property. It states that the value of their part of the property cannot go below what it was when we bought it. In other words we have to wait for the prices to rise and catch it on the up.

There is no way a lender would give us the money for something which is overpriced. This is going to cause the added problem that our fixed rate ends this month and we will be at their mercy by not being able to switch or remortgage. We are lucky that it is an annual review.

robin_banks

Only 1% of property in the UK is shared ownership. Of that 1% only 3% have stairgated thier %ge of ownership.

ironman1

Shared ownership still beats renting though, surely?

Anyway i've spoken to the housing association and if we bought more shares we pay the current market value. So it seems a good time as ever to do it. No doubt they make it hard. i'm sick of the 250 per month dead money rent we are paying