Shared ownership staircasing - Advice needed!

SapphireP

Hi,

I need some advice. I'm sorry if this post is a little long but I'll try to give all the relevant details about my situation.

In June 2009, I bought 25% of a shared ownership flat. The flat was completed in 2008 and was originally priced (in 2008) at £300k. I had the flat revalued right before I bought it and it was valued at £250k so that was the price I paid for my 25% share. I paid for it with my savings so I don't have a mortgage.

My job is secure. I don't have any debt and have paid off my student loan. I don't have much savings left after I bought the flat but I still have around £8,000 in my cash ISA to see me through in case of emergency! I am currently thinking about getting a mortgage to buy further shares of the property but I am not sure if it's a good idea.

The rent I am paying on my shared ownership property is 2.75% of the remaining value at the time of purchase. This amount increases in line with inflation PLUS 0.5 percentage point yearly. If I am to buy further shares of the flat, the flat will be revalued and the rent with be adjusted to 2.75% of the new valuation. Obviously, this means that if property prices go up, I will end up paying higher rent if I staircase.

I have calculated that I can afford to borrow another 63k or so, enough to get myself 25% further shares in the flat bringing the total share that I own to 50%. The best mortgage interest rate that I found is 5.38% fixed for 5 years. During the fixed period, it allows me to overpay for up to £500 per month without incurring early repayment charges. Interest is calculated daily.

If I go ahead with the mortgage and staircasing, the fees (land registry, solicitor, mortgage reservation, surveyor e.t.c) come to roughly £2,000.

My flat is in London, zone 2, opposite a park and close to 2 underground stations and mainline railway. The area is a little 'dodgy' and there are many police officers walking around one of the underground stations. There is a big council estate not far. However, there is a lot of building work going on in the area and on my street. The council also plans a massive regeneration project for the council estate. My first instinct is that the area will get better.

Now, my question is, what do you think is the best thing for me to do? I can:

1) Do nothing. Pay cheap rent forever and invest my savings. With this option, however, if property prices do go up, I will only reap 25% of the gains. Also, when the time comes for me to sell the flat, there are some restrictions. Basically, the housing association will try to find someone to buy it from me. The selling price will be the valuation price. If housing association is unsuccessful in finding a buyer after 6 months, I will be allowed to put it on the open market. Although I am not sure how popular second-hand shared ownership properties are.

2) Staircase up to 50% and stop there. Rent is cheap and less than mortgage interest rate. Also, I am in a lucky position to be able to choose how much of my property I want to own so why put all my eggs in one basket? I can invest in my flat to 50% and from now on invest my savings elsewhere. If I go down this route, I will also face the same restrictions when I want to sell the flat. If I go down this route, I will have to decide when is the best time to do this. Shall I do it now? Shall I wait until next year? Will property prices keep on rising? Shall I get a mortgage for it or shall I try to save up money and pay for it that way?

3) Try to staircase up to 100% then I will be a typical home-owner and I can sell my property in the open market. Again, I am unsure about how best to do it if I go down this route. Each time I staircase, there are fees involved so maybe I should staircase in big chunks rather than a little at a time?

Right, sorry this is really long. I am young and I am really unsure about what to do next!

Thanks!