Shared ownership staircasing help & financial advisor/solicitor advice please

martyp

Hi all,

I bought my house as a 50% share in 2005, recently the housing associating offered £400 cashback if I bought the other 50% or further shares (another 25%). I'm currently on a 3.5% SVR with my mortgage.
I thought with the housing market the way it is and the benefit of the cashback I'd consider options. As buying outright would involve about £10k outlay I went for the 75% option.
I went to see the financial advisor as suggested by the HA and with some calculation buying the other 25% based on estimated house value would mean just £60 more a month after the rent reduction. The two mortgages offered were either my existing provider at a higher fixed rate or a different one with no upfront fees and a fixed rate only slightly more than the SVR I'm currently paying. Both fixed rates were for 2 years with a SVR of around 4.5% after but at which time he would help me transfer to a different product.
I have to pay £144 for the HA's valuation fee and my FA said their fee was £200. Last time on purchase the solicitor's fee was £660...
I think it's worth getting further shares in the house at this time but yet to find out how much the solicitors might charge considering I already own half the property.
My queries are:
1) The financial advisor only charged £99 when I bought the house then when I switched products with him was told that was free if I stayed with the same provider but would pay if I switched to another. I was confused when he said it would be £200 this time round regardless as he said I paid a discounted rate before and he waived the fee last time. Is this normal cost for a financial advisor and is it essential to even use a financial advisor? Am I wasting my money?
2) If the conveyencing fee was about £660 last time and I used the same one this time is it likely to be less than that as possibly the searches etc wouldn't be needed this time round? I'll call for a quote tomorrow anyway but just thought I'd see what might be the likely outcome beforehand.

Any advice regarding the above would be really appreciated as I always feel a bit on edge when parting with amounts of cash over £100!

Many thanks in advance

brit1234

I believe you would be better off paying down the existing mortgage thus reducing your costs that way and making it easier to sell. Its a big win for the HA to sell you more shares as it puts more risk with you as house prices continue to fall.

carefullycautious

The HA arent daft are they.

G_M

Reduce your mortgage with savings. THEN consider buying more shares.

Financial advisor costs: shop around and find a financial advisor who does not charge but takes commission from the mortgage company.

If necessary, do this with 2 or 3 advisors to compare what advice they come up with.

martyp

Many thanks all. Having a rethink now...
Could the FA charge me if I didn't go ahead as he said it would be when I switch mortgages,at the moment all I got was a mortgage in principle for the housing association. So overpayments are the way forward at the moment then?
I did think the housing association was trying to reduce their liability for falling house prices. Is it likely house prices will fall further and I'll end up with greater negative equity? I did also wonder if a 50% shared house is more sellable. One thing he pointed out was that I paid a much lower deposit in 2005 than I would have done if I bought now. I really felt I bought my house at the wrong time.

Richard_Webster

If the value of the property has gone down since you bought 50% then you could have a problem anyway.

Hypothetical example as follows:

Original value £100K - you pay £50K with £45K mortgage.

Property now worth £80K. To buy a further 25% costs £20K. Lender will only lend you 90% of total new value = £54K. Take off £45K of existing loan and you only get a further £9K so you have to find £11K of your own money.

Obviously i don't know the property values when you bought, and now, and how big a mortgage you originally had.

However, hopefully you can see the point. A lender will not lend you a percentage of the extra, but only of the total original value, which must include paying off any existing loan or taking a further advance on top from the same lender.

martyp

Many thanks Richard
I can advise that the breakdown and assumptions are as follows:
I bought the house in 2005 for 110k, paying a 55k mortgage including a 1.8k deposit. 2 years later I borrowed 3k on top to replace the windows and bathroom but only ended up doing the bathroom in the end and used much of the other money for minor decorating. The housing association said they would take improvements off their valuation.
In 2007 the mortgage provider valued the house at 10k more but now they estimate it's worth 99k. The mortgages shown to me by the financial advisor were based on borrowing an extra 25k I think or thereabouts. I still need to pay off 52k on my existing mortgage but was hoping buying the extra 25% now would be an investment when house prices finally start increasing again.
Would all that match up with your calculations above?
Sounds though that I might be better off overpaying my existing mortgage as I suppose technically it's 2k more than an estimated 50% share now.
I haven't yet proceeded with the valuation etc so can still pull out based on the advice given here. The financial advisor seemed positive it was a good idea but he's making money from it...

Richard_Webster

If 100% is worth £99K then 75% is worth £74250 and you would need £24750 plus costs to buy further 25%.

You say you owe £52000. In the present market you are unlikely to get a lender to lend more than 90% of total value of 75% share = £66825.

Take away the £52000 you already owe and there is only £14,825 available to buy the further 25% costing £24,750. On these figures you will need to find nearly £10K of your own money.

I do wish financial advisers would understand staircasing. Why did he ever think that a lender would lend you more than 100% of value?

martyp

Many thanks Richard, much appreciated. It does sound the financial advisor has misled me on this one as his main ploy was that I would own 75% of my house which was an investment but didn't seem to have any understanding of the loss/risks involved. I called my mortgage provider to ask their perspective of how the financial advisor could even offer the amount given in the mortgage in principle and they didn't think what he offered was normal and would be a great risk to me. The mortgage in principle I have got is that £95,600 is available to me based on the property being worth £100k. The advisor I spoke to was really helpful in further adding that the housing association would foot the loss at the moment but with me owning 75% I would then be liable to paying more as a loan as such to cover the difference in the house value if I sold it. At the moment I stand a good chance of not making any loss and just getting my money back in theory.
What was confusing was she suggested that using savings might not benefit as I have a guaranteed extra income from the interest on those where if I paid that money into the mortgage then I would lose it and still not make anything back on the sale of the property.
Is it true that the housing association would have to pick up the loss if I sold the property for less than I bought it now?
I don't quite get what is meant by that or how it works but I'm pretty much convinced from the great advice on here that the extra 25% purchase would be a bad investment...
Out of curiosity I also tried contacting the conveyancing company I used last time to see what their fees would be as well and it seems like they don't exist anymore!
Thanks again for the advice everyone, especially Richard. I don't think now it's even worth checking with other financial advisors as the info on here makes much more sense.

HARSA

I also own 50% of mine. Couple of years ago I started to overpay masssively and in Sept next year I will be mortgage free on my bit. My neighbour sold his 50% share recently and made 25k profit. Someone on their waiting list bought it at what i will think is overpriced. Try and over pay as much as you can and sell it to someone on their waiting list and buy another property using your equity. Goodluck

martyp

Hi HARSA,
Many thanks for your post, it's interesting to speak to others with shared ownersip properties. There were quite a few in my street, I was really pleased to get my house as the estate is really nice and many of the houses are much bigger and more expensive but mine is really nice as well. If my finances get any better next year I'll look into maybe at least getting my 50% down below half the current estimated value of the property so I can start increasing the equity I'd have it I sold it. The rent is about £148 and goes up about £5 a year which isn't overly bad as it also includes buildings insurance. Does your Housing Association allow you to buy the property 100% as I heard some don't allow you to? I know mine definitely does but as mentioned above I couldn't afford to do it at the moment and it's too risky with the falling house prices...