Best plan for staircasing?

AliceBanned

Hi

I bought 40% of a shared ownership flat in October this year (£62k - full price £155k), and paid a 15% deposit. I am not sure whether to overpay on my mortgage in order to work towards buying further shares, or just put the money in a savings account. I can only save about £80-100pm at the moment. I can buy up to 100% of the property - but can staircase no more than 3 times, so am looking to buy another 20% each time. My salary is £29745 at the moment. I couldn't get a mortgage for more than the 40%, otherwise I would have as could afford the repayments- probably as my credit rating is not great, because I would be paying the same amount or slightly less if I buy more - the rent is £340pm. I love the area and it is easier for me to get to work here so it seemed to be my best option but I plan to own a place 100% in the future.

I am not sure how best to plan for this - I think i would need a 10% deposit for each share, but not sure whether it works like that.

I worked out using the overpayment calculator that my current mortgage could be paid off in 10 years if I overpaid £100pm, though I wouldn't be able to sustain this type of overpayment for ten years! I took the mortgage out on a 21 year term as I will reach retirement age in 21 years.

I haven't had a mortgage before so am not sure how to put myself in the best situation financially to be able to borrow for a higher percentage of the flat - maybe it depends on individual lenders? Thanks for any advice.

gazfocus

Who's your mortgage with? The reason I ask, is I have a shared ownership mortgage and overpayments are not allowed...just something to think about.

We are currently going through a similar process, although, we're looking to staircase from 50% to 100%, so would be interested to see what you decide.

Bella56

gazfocus wrote: »

Who's your mortgage with? The reason I ask, is I have a shared ownership mortgage and overpayments are not allowed...just something to think about.

We're with Nationwide and are allowed overpayments with our SO property. We too are hoping to overpay until we pay off mortgage (min. 8 years, probably much longer) then we're going to get a mortgage for the remaining 50%, to be repaid by retirement. Thats the plan anyways

ValHaller

AliceBanned wrote: »

I haven't had a mortgage before so am not sure how to put myself in the best situation financially to be able to borrow for a higher percentage of the flat - maybe it depends on individual lenders? Thanks for any advice.

First is to get out of your overdraft. Next is to pay off all your other debts.

To me, it looks like your other debts add up to about 8000, which will come off your salary - (or a bit more if it is done by 'affordability) - giving you an effective salary of about £21,000. On such a low effective salary, your limit of borrowing will be about 3 times income anyway.

Once you have your debts sorted, you may find that you become eligible for a larger mortgage and you will know how much you need to save for the next step. On the subject of savings, you only need an emergency fund at the moment. Don't delude yourself that you have £80 - £100 per month available to save. Anything you 'save' while you have debt is effectively being borrowed at the highest interest rate you are currently paying. Put that £80 - £100 to paying down your debt.

AliceBanned

gazfocus wrote: »

Who's your mortgage with? The reason I ask, is I have a shared ownership mortgage and overpayments are not allowed...just something to think about.

We are currently going through a similar process, although, we're looking to staircase from 50% to 100%, so would be interested to see what you decide.

Hi, my mortgage is with Halifax and overpayments are allowed. Can't remember the % I am allowed to overpay annually but it is way more than I can afford to overpay anyway. I haven't made any changes yet as am just getting settled and getting used to the expense of it all!

AliceBanned

Bella56 wrote: »

We're with Nationwide and are allowed overpayments with our SO property. We too are hoping to overpay until we pay off mortgage (min. 8 years, probably much longer) then we're going to get a mortgage for the remaining 50%, to be repaid by retirement. Thats the plan anyways

Interesting. So that works out better financially than staircasing in your case? I am amazed at how easy it is to knock years off with the SO mortgages by overpaying, as they are relatively small loans usually. May be best for me to do it that way too but at the moment I'm not doing anything, just trying to find a plan to set in place (due to also having debts).

AliceBanned

ValHaller wrote: »

First is to get out of your overdraft. Next is to pay off all your other debts.

To me, it looks like your other debts add up to about 8000, which will come off your salary - (or a bit more if it is done by 'affordability) - giving you an effective salary of about £21,000. On such a low effective salary, your limit of borrowing will be about 3 times income anyway.

Once you have your debts sorted, you may find that you become eligible for a larger mortgage and you will know how much you need to save for the next step. On the subject of savings, you only need an emergency fund at the moment. Don't delude yourself that you have £80 - £100 per month available to save. Anything you 'save' while you have debt is effectively being borrowed at the highest interest rate you are currently paying. Put that £80 - £100 to paying down your debt.

OK thanks. Just worried that if I don't save something I will never buy further shares. But I agree about paying off the debts - struggling at times and doing better at other times. Maybe I do need to break it down and start off with the overdraft, then each credit card, expensive one first. Since i moved here my outgoings have been quite a bit higher, although some costs such as petrol are much lower so it is not too bad overall, and better quality of life, which usually costs more I suppose.

Bella56

AliceBanned wrote: »

Interesting. So that works out better financially than staircasing in your case? I am amazed at how easy it is to knock years off with the SO mortgages by overpaying, as they are relatively small loans usually. May be best for me to do it that way too but at the moment I'm not doing anything, just trying to find a plan to set in place (due to also having debts).

That is very understandable & it will feel wonderful when the debts are gone!
We plan to staircase after repaying current mortgage, as finances will be tight over the next few years, so we don't want to take on higher mortgage payments, but will overpay as and when we are able. So long as the staircase mortgage is paid by the time we retire, we're happy!

AliceBanned

Yes, it will feel much better when debts are gone or at least much lower, but it's a slow process! I think I'm quite impatient and at this time of year I've gone and spent more..

Do you have fairly low rent payments? With my rent, council tax and service charge it's a lot on top of mortgage so I may have to staircase in 2 or 3 stages at around 20 or 30k each time, possibly never to the full amount as my salary is a bit too low for that. As long as the rent payments are a lot lower I don't mind, as I love living here!

Bella56

I know that feeling!!! We were supposed to be overpaying now, plus building up emergency savings, but DH had a secret credit card so we're now paying off debt instead.

Our rent + service charge is a whopping £400/month now, about the same as our mortgage. I'll be looking for a full-time job once the kids are older, so that we can get the staircase mortgage. You have to pay the solicitor, valuation, etc. each time you staircase - thats the only reason we only want to do it once. Might have to do it twice though, to take advantage of lower property value now versus higher in future.

Hope your debt-clearing quest goes really well in the new year!

AliceBanned

Thanks, and good luck with your repayments!

Yes it could get quite expensive staircasing too many times so I will try and do in just 2, one largish chunk in a year or two if I can, and then any more that I can manage later. Values seem to be going up in this area about 7% a year so I don't want to leave it too long. Not sure whether the value of my flat is going up as fast as that though.

My rent and mortgage are about the same as yours. It's not too bad for the amount of space I have and location, but doesn't allow me to save/repay debts very quickly. Just have to keep going with it.:)