shared ownership buy more share or pay off mortgage?

inthegreen

I am in the process of buying a shared ownership flat and will be in the position of being able to overpay on my mortgage. Would it be better for me to overpay the mortgage and aim to be mortgage free before buying extra equity or save the money and buy 10% shares as and when I can afford them?

Many Thanks

ps all the debt in my signature will be cleared before the purchase of the flat goes through:T

Big_O

I'm in the process of doing exactly the same myself, so would be interested to hear the opinions of others. I guess it depends on what you think the housing market is about to do after you're contemplating buying each chunk. Bear in mind that a valuation is needed each time you buy another chunk, so maybe an argument for buying the whole otehr 50% at once?

ailuro2

Well, my tuppence- I'd overpay until the mortgage was at a level where I could pay it comfortably with just one wage coming in- there are two of us paying into it at the moment- it gives us more security.

You may be restricted in how much you can overpay with a new mortgage if you have got yourself a reduced rate ( I hope you have!), but whatever you overpay can be set up to remain accessible then if/when you decide you want a bigger share you can withdraw the money and buy another %age.
(for example if the housing market were to slump and home values dropped- if you have no intention of moving home in the near future that would be a good time to buy a bigger share.)

Lots of ifs,buts,maybes,, only you will know how long you will be likely to live there, how important having a potentially small mortgage is to you.

Dithering_Dad

I have a friend in London who owns half his house and the other half in held by a housing agency. He waited and waited for a housing crash in order to buy out the agency and now cannot afford to buy.

If you can afford to make overpayments, then it sounds like you can comfortably afford your current mortgage. That being the case, I would salt your money away and buy the 10% shares as and when you can afford it.

If you look at it logically; 50% of the property is in your name, so for the same amount of cash:

If you overpay on your current mortgage by £5000, you will still have 50% of the property in your name and have £5k more equity.

If you buy a futher £5k of the property, you will have 60% of the propery in your name and have £5k more equity.

note: I dare say 10% of your property will cost more than £5k, but I used that value just as an example.

rchddap1

Personally first I'd make sure I had a little savings fund first. A just in case fund so if anything goes pear shaped you can use your savings instead of getting some debt.

Sometimes overpayments are restricted to a certain percentage each year...so first step is to check that. A further option would be to slightly overpay whilst still building up a 'buy the rest of the house fund'.

Kaz2904

I would use any savings that you have to buy chunks of the property because it is going to increases proportionally to the rest of your flat. You might get stung by a crash but unless you have a crystal ball no-one knows what the future holds.

Bargain_Rzl

I'd say it depends what you want from your home and what you expect the market to do.

I'm currently on a very reasonable fixed mortgage rate with 16 months left before I need to remortgage. I fully expect interest rates to be higher then than they were when I took out my current mortgage, so my current priority is to save and pay off a lump sum upon remortgaging.

The way I see it, if the market continues to boom (and I'm not convinced it will, not in relation to my little flat anyway) I can pay off my existing mortgage and then remain on a low rent for as long as I continue to live in the flat (which could be the rest of my life!) - it would be a very manageable sum and would enable me to make other investment-based provisions for my future that are not based on my home.

On the other hand, if the market crashes I'll snap up the rest in one go at a reduced rate!

I expect to make a decision one way or the other within the next 3-4 years.

(The only thing I am not considering at all is buying the remainder in more than one stage. A 70% SO flat will in my opinion be a lot less attractive to FTBs for sale purposes due to affordability. At 40% ownership it's an attractive bargain, and at 100% I'd be able to let it or sell it on the open market.)