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Help! Shared ownership staircasing query.

Hi guys I've recently joined the forums but have used MSE for years now, so apologies if this has already been posted I couldn't find it anywhere.

Ok, so basically I live in a shared ownership property ran by Orbit First Step. I have a 35% mortgage share through Leeds Building Society. When I purchased the property it was valued at £115,000. I took out a mortgage based on the 35% share (all I was allowed at the time) which meant a mortgage of just over £40,000. I am now looking at taking advantage of the drop in house prices to increase my share for little cost.

I have had a valuation done with a chartered surveyor and they have valued the property at £87,500, meaning technically I am now in negative equity.

I have contacted Orbit to start proceedings to increase my share but am unsure on how this is all going to work.

As my flat has dropped by £27,500, surely this means I can increase my percentage for no extra cost as the value is less than I first bought? Meaning now my £40,000 mortage is approximately 45% of the total value, so I should be able to talk to Orbit and get a 45% share, for no extra cost, aka lower rent and the same mortgage cost.

I'm in a predicament because I don't want to throw money away paying more with negative equity, but I also don't want to go through the process to find I have to pay a huge deposit.

I hope this makes sense, i've tried to make it easy to understand but if it doesn't and you think you can help please let me know!

Thanks a lot guys!

Comments

  • puddy
    puddy Posts: 12,709 Forumite
    no, you own 35% of 87k, so if you want to own 45% you will need to pay whatever it would cost for another 10%.
  • Assuming the valuation was done correctly with the agreement of the HA/Orbit.

    I suspect the drop in price needs to be split 35%/65% between you and Orbit... -£27.5k splits; -£9.6k to you, -£17.9k to them.

    The good news is, instead of around £75k left to buy, you have £57.1k left to buy...you currently "own" £30.4k worth.

    The bad news is, if your mortgage remains £40k (interest only?), you would need to find £9.6k if you had to sell up for some reason.

    Buying a chunk now could lead 'you' to regain 'their' lost equity as prices recover.

    You need to talk to Orbit/HA, as scheme details vary. You should probably involve your solicitor who first arranged the purchase, they can help clarify the fine print. Your Lender may also be a useful point of contact, having done staircasing for other similar clients.
  • If you want to buy another 10% of £87,500 worth of property that will cost you £8,750. You actually will have to find that money from somewhere - the HA will want paying the 10%!

    Have you got the cash? Your present mortgage will not cover it - it is already for more than 100% of a 45% share so the lender will not lend you any more.

    I have posted before on the calculations involved when people try to staircase in a falling market - it isn't as straightforward as people might think, because they fall foul of LTV issues - the lender is never going to lend more than the current value of the share being purchased.
    RICHARD WEBSTER

    As a retired conveyancing solicitor I believe the information given in the post to be useful assuming any properties concerned are in England/Wales but I accept no liability for it.
  • jenner wrote: »
    no, you own 35% of 87k, so if you want to own 45% you will need to pay whatever it would cost for another 10%.

    No need to be rude :o

    It is a fixed rate mortgage i'm on for another year and a half.

    I'll have to speak to them directly like you say I think, problem is, the woman I need to speak to never answers her phone !
  • Orbit_First_Step
    Orbit_First_Step Posts: 1 Newbie
    edited 8 December 2009 pm31 3:35PM
    Hi thestribb

    Thank you for posting your question and thank you to everyone who has responded to the thread so far.

    In the lease of your Orbit First Step home, it states that if you would like to purchase further shares (also known as staircasing), you need to pay the current market value of the share.

    You were right to get an RICS valuation and the other people in the forum were right when they said based on a valuation of £87,500, a further 10% would cost £8,750. You would need to fund the purchase of the addtional share.

    I'm sorry to hear that when you have called us you haven't managed to speak to anyone. We aim to answer or return 100% of calls.

    If you would like to discuss your situation further, my colleague Julie Frew would be only too happy to speak to you on 02476 438050.

    Kate Hughes
    Marketing and Communications Manager
    Orbit First Step
    Part of the Orbit Group
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