Shared Equity Mortgage Coming to an End - What to do Next?

tleefox

Good morning ladies and gentlemen - hopefully someone can help me!

Nearly 2 years ago myself and my girlfriend purchased our first home through Bovis' "shared equity" scheme called Jumpstart. The sole reason for doing this was that we did not have enough money to get a deposit to own the property outright, but wanted to get ourselves on the ladder ASAP.

Our split was 75:25% with Bovis retaining the other 25%.

The purchase price of the house was £180k, although the valuers undervalued the property and would only base our mortgage on a value of £165k. Consequently we had to make up the shortfall of 75% of the £15k = £11,250, and out mortgage amount was £123,750.

Our mortgage (which was presented to us by our FA recommended by Bovis - mistake no.1) was a 2 Year Fixed.

The terms of the shared equity deal was that we can carry on paying the 75% mortgage for up to 5 years without any additional costs. After 5 years they start to charge interest on the outstanding balance.

So, our current deal comes to an end at the end of May, and we now want to re-mortgage for the full 100% of the purchase price as we need to re-locate due to my work and want to rent the house out, which we cannot do when we only own 75% of the property.

What do we do next? Do we need to get the solicitors involved again? Should we go to a FA to look for a mortgage (I am not using the one we used before again!) or just speak to our existing lender?

Finally, will there be any issues with the banks not giving us a mortgage for 100% of the value of the property when we have not paid off very much of the mortgage i.e. will they look at it as if we were buying the property fresh and we do not have enough deposit for the 100%?

Thanks in advance.

beecher2

Speak to your lender first - I suspect you will have nowhere near enough equity to do what you hope to. Selling up and taking the hit may be your only option.

CloudCuckooLand

The valuers didn't undervalue the property. The developers overvalued it, and you chose to go along with their profiteering.

Get your car loan paid off, save hard, and pray interest rates don't increase after your deal ends.

You will need substantial amounts, £41k to convert your first house to buy-to-let. And another £20k or so, if you want to buy your second place.

tleefox

Thanks for the responses thus far.

Just to clarify, we are looking to rent our second home, not buy. I work in construction so move around the country a lot.

BadgerFace_2

Very rough figures here, but your mortgage for the 75% will probably be sitting at around £120,000. Your house will have dropped slightly in value I'd have thought, seeing as it is no longer new, so maybe £160,000 (which I think is probably optimistic, but don't know the locale). So on that, the 25% share would be £40,000, which, assuming those figures aren't too far off, means you have no equity and will not be able to buy 100% of the house unless you have £20k in a bank somewhere.

If those figures are about right, I'd seriously consider selling if you're not going to live there.

betmunch

Cant see you buying 100% of the house, unless you have some savings to put into it. Do you have any savings?

tleefox

I spoke to somebody at Nationwide Mortgages Customer Services earlier on, and there was not really a lot she could tell me and that I needed to make an appointment with an in-branch advisor, which I have done for next Friday.

I asked her if she knew whether we would be able to re-mortgage for the full 100% based on the existing equity we had, which (having referred to her employee handbook) she suggested would be a cash advance on the mortgage, for which we needed a 5% deposit for the advance amount - which I would assume would need to be based on the current market value of the property or £180k, whichever is greater.

How accurate she is I'm not sure - will wait and see what news the appointment brings.

blueberrypie

tleefox wrote: »

So, our current deal comes to an end at the end of May, and we now want to re-mortgage for the full 100% of the purchase price as we need to re-locate due to my work and want to rent the house out, which we cannot do when we only own 75% of the property.

The first thing you need to realise is that the value of your property is not what you paid for it - it's what it would sell for today. That is very likely less than you paid for it. In other words, you probably don't have any equity.

The second thing you need to realise is that you won't get a mortgage for 100% of the value of the property - very few lenders will consider lending anything more than 90%.

The third thing you need to realise is that if you are going to let out your house, you will need a mortgage that is specifically for that situation, or a residential mortgage with consent to let. Buy-to-let mortgages generally cover a maximum of 75% of the value of the property.

Sorry if all that sounds very negative, but you don't come across as someone who really understands the situation he's in. It sounds likely that your only option will be to sell and find a way to pay the difference.

tleefox

blueberrypie wrote: »

Sorry if all that sounds very negative, but you don't come across as someone who really understands the situation he's in. It sounds likely that your only option will be to sell and find a way to pay the difference.

No problem - I appreciate honest answers and would rather face up to the situation now for what it is. Truth be told, I didn't really understand the minefield that is housebuying / mortgages when we purchased the house.

What is the difference between a buy to let mortgage and a residential mortgage with consent to let? How likely would it be that the lender would give us consent to let, based on the fact that we are not looking to purchase a second property?

blueberrypie

tleefox wrote: »

No problem - I appreciate honest answers and would rather face up to the situation now for what it is. Truth be told, I didn't really understand the minefield that is housebuying / mortgages when we purchased the house.

What is the difference between a buy to let mortgage and a residential mortgage with consent to let? How likely would it be that the lender would give us consent to let, based on the fact that we are not looking to purchase a second property?

A BTL usually requires a larger deposit, and can be at a higher interest rate than similar residential mortgages. A residential mortgage is based on your income and what you can afford to pay back, whereas BTL is based on the rental income from the house - that is, your expected rental income needs to cover (and more) the mortgage payments. Consent to let can expire - i.e. you could be forced into a BTL mortgage later anyway.

But your main issue is that you have no equity, thus ruling out both residential *and* BTL mortgages.

In order to purchase 100% of your current house, you're going to need a mortgage for whatever you owe now (£120k-ish) plus whatever your agreement with the developer says you can buy the last 25% for. If you have to pay the developer £45k, you will need a mortgage for about £165k.

So regardless of whether you went BTL or consent-to-let, you'd be looking for a mortgage for the full value of your property - assuming your property is still worth £165k. Given the housing market since you bought it, and the fact that it's no longer a new build, it probably has fallen.

You won't be able to borrow 100% of the value on either a BTL or a residential mortgage.

If your property value has fallen, your situation is worse, because the outstanding mortgage + the amount you have to pay the developer = more than the property is worth - i.e. you would need a mortgage for *more* than 100%.

Your current lender might give you consent-to-let on the mortgage you hold now, but they won't offer to increase your mortgage to 100% or more of the property value - which leaves you unable to buy the portion of your home which is still held by the developer.

If you can sell for £165k, you can just about cover the outstanding mortgage plus what you must pay Bovis. Talk to an independent advisor, but don't be surprised if you discover that selling is your only option (or if it turns out that even on selling, you'll have to find the money to cover a shortfall).

tleefox

May be a stupid question, but a colleague of mine who found himself in a similar situation having been made redundant a while back bit the bullet and decided to rent his flat out as was, effectively without owning the property outright.

Risky business I know - what would be the consequences of such an action if caught, and what is the likelihood of that happening?