Shared Ownership - pay off mortgage or buy more share?

smreynard

Hi, I wondered if a financial adviser could help me with this? I have been left an inheritance which I could use to pay off the mortgage on my 50% share in my SO house. That means I would still be left paying rent for the other half at £130 per month. The interest-only mortgage payments are £146 per month. If I used the money instead to buy some more share in the house I would still only own around 70% of it. I would, of course, remortgage so I wasn't on interest-only, the amount owing on the mortgage is £22,500 so with a lower interest rate the payments wouldn't be much higher than what I'm paying now, I think!
If I pay off the mortgage, along with other debts that I'm paying off, I will be around £600 per month better off, so should I save some of that money towards buying more share in the house instead?
We have an autistic son who we would want to leave the house to eventually. So, bearing in mind that the mortgage would be paid off in the future by life assurance if anything happens to me or my husband would it be better for him if he owned more of the house? Although if he wasn't able to work presumably the rent would be paid by benefits? It's so difficult to know what to do for the best in the long-term. Any advice would be appreciated.

MortgageMamma

Sorry can't possibly help with the amount of information on there, I understand you are confused but I think you would be better to speak face to face with an adviser. its a big decision to take and you should not base your decision on what someone says on an internet forum.

Look for a mortgage broker in your area and ask them to help.

MM

Bargain_Rzl

I am not a financial advisor but I am another shared owner, and although I would DEFINITELY use your inheritance to clear your existing mortgage, I would be wary of buying more shares until you are in a position to buy the WHOLE of the rest.

At present, if for some unforeseen reason you had to sell up and move, your 50% share plus small monthly rent would appeal to a FTB in the market for a shared ownership property. Similarly, if you owned 100% you would (presumably, depending on the T&Cs of the scheme you're on) have the freedom to market the property openly, or to let it out. If you owned 70% and had to sell, who is going to want to buy it? They would have all the restrictions of shared ownership for a monthly outgoing only fractionally less than they could buy a whole house for. Also you'll have to pay for the valuation and legal fees EACH time you want to increase your share, so the fewer times you have to do it, the better, in my opinion!

Obviously I don't know the market conditions in your area, but do you really see house prices continuing to inflate? I don't think there are many people who do. Most are now predicting a levelling-off of prices if not an actual crash. How then would it benefit you to own more of your house? Would another investment vehicle be more likely to give a good return? You could always end up cashing in this investment and using it to purchase the whole of the remainder of the house, should it reach the right amount.

HOWEVER, in your particular circumstances there is one advantage that I can see in buying another share in your house. I assume you mean buying the share outright rather than with a mortgage? If so, this would effectively protect your savings from being taken into account should you ever have to claim benefits.

Because of the difficulty you may have in selling your house once it's at 70% ownership, I would say if you can say for certain that you are not planning to move (have you got stable employment? A solid local job market? No ageing relatives at the other end of the country that might need you to nurse them if they become ill?) it might be worth buying the extra.

Another option to consider would be to buy the whole of the remainder with a mortgage to cover the bit you can't buy outright (I'd do this if it wasn't too expensive) leaving you with no rent and full ownership rights - or isn't this an option?

smreynard

Thanks for your very long and detailed answer. We don't intend moving from here as we wouldn't be able to afford to buy anything else. We understand that if we did decide to sell then the housing association who own the other 50% would buy us out as they could then rent out the whole house.
When we originally bought the house just over six years ago it cost £45,000, the reason we went for SO was because of my husband's age as we would have had to repay £45,000 over 12 years which was the same repayment as if we had borrowed £90,000 over 25 years. The house is now worth £140,000 so if we pay off the mortgage we will have £70K equity but would have the same problem if we wanted to buy the other half as my husband is nearly 60 so we couldn't afford a £70K mortgage over such few years. It grates a bit as well as we were offered a £45K mortgage at high interest rates at the outset but turned it down. If we'd known the prices were going to treble we would have gone with that.

Bargain_Rzl

It might be worth looking into what would happen if you left your home to your son when you die - whether HB would cover full rent on the remaining portion if he was incapable of working.

If you find that it would, perhaps it is not worth buying more shares.

I confess that I am very sketchy about how benefits work in relation to SO.

smreynard

Yes, the rent would be covered by HB, that's why I'm not sure that buying further shares would be worthwhile. We were a bit concerned that if he was working he might not pay the rent but we've arranged a disability trust in our wills that will make sure the rent is paid.
Thanks for your comments anyway. I think we will use the inheritance to pay off the mortgage and then save as much as possible towards retirement.