Is this a smart way to approach shared ownership?

YoungGentry

Hey fellow MSErs

So I would like to move out of my parents, and into a property so I can start the next phase of my adult life. While there isn't a rush(i save around 1k a month), the nonsensical London property market is making purchasing a little place of my own increasingly difficult to the point where I can no longer buy outright.

Now I am looking at shared ownership, I live in the Croydon borough(work in Tower Hamlets) and am looking to buy a SO property near East Croydon however they are only offering 35% as it is a resale.

My approach is shorten the term on the mortgage to 10 years efficiently removing the majority of the interest on the mortgage instead of buying another 20% allowable by my mortgage maximum.

The reason I have taken this approach is that in the early years you are effective paying interest so in my mind I am paying rent + cost of rent (sc) + other rent(interest) and wouldn't really be paying off a mortgage. See the analysis below. Let me know what you think.

Financials:
- Mortgage Required: 60000

- 80% LTV mortgage @ 3.39 5 year fixed

- 10 year term = minimum total 70k - after 5 years - 27k will be taken off the principal

- Typical 25 year = minimum total 88k(realisticly 110 taking into account SVR) - after 5 years only 10k will be taken off the principal :mad:

Extra Information about the SO lease:
- I would not be charged for external works as it is present in the lease. Approx 130
- I could staircase to 100%
- Rent increases are limited to a maximum of 2% and will not raise will inflation is 0 or negative Approx 300

More Information:
- I am aware of the restrictions, being able to paint the property is enough for me.
- The property is in-line with the local market, though maybe about 10k inflated if I am honest
- it will be sold by a HA

My Plan:
Have the property for 5 years and then take stock of what I want.

kingstreet

Will a ten year mortgage, the rent, service charges etc and your other outgoings be affordable on the Government SO calculator and to a mortgage lender?

YoungGentry

kingstreet wrote: »

Will a ten year mortgage, the rent, service charges etc and your other outgoings be affordable on the Government SO calculator and to a mortgage lender?

Potentially I would still be sitting at a budgetary surplus of about 200-300 quid a month if I went down the 10 year term route.

kingstreet

I suggest you get the numbers together and run them through your likely lender's affordability calculator.

Then, get in touch with your local HTB Agent which manages SO in England and ask them to run the SO calculator to see if it fits.

Dird

kingstreet wrote: »

Will a ten year mortgage, the rent, service charges etc and your other outgoings be affordable on the Government SO calculator and to a mortgage lender?

What generally counts as affordable for them? I'm having my meeting on Monday & hoping for 8 years.

Is 3.39% the best rate for SO?

libf

Personally, I would take a longer term and overpay. You can create the same affect as shortening the term without committing yourself to a higher payment so that you have flexibility to switch off the over-payment if required.

One thing to keep in mind with shared ownership... It will always be easier to sell a smaller share, so as long as the rent portion isn't getting to be ridiculous it might not be a good idea to staircase unless you want to stay in the property long term.

kingstreet

Dird wrote: »

What generally counts as affordable for them? I'm having my meeting on Monday & hoping for 8 years.

Is 3.39% the best rate for SO?

It fits the calculators or it doesn't. There's nothing general about it. Every applicant's circumstances are different;-

age
term
income
credit
dependents
other outgoings
deposit.

3.39%? Not a clue mate. I'm a mortgage broker, not a walking interest rate repository. We pay for software to do that. We have enough to remember in the criteria of god-knows how many lenders.

Dird

kingstreet wrote: »

3.39%? Not a clue mate.

That part was aimed at OP as it's the rate he said he'd go with...need to learn to hit multi-quote button

But dependents etc would/should be viewed as costs. My general meaning was:
ingoings/outgoings at break even = rejected?
monthly ingoings £500 higher than outgoings = acceptable?

kingstreet

I'm sorry, it just doesn't work like that.

Lender calculators are programmed to calculate mortgage costs at future rates and there's no way of converting their gross annual income model, to your net monthly disposable surplus.

We use the lender calculator to correctly calculate what a lender is prepared to lend. If the applicant meets the lender's criteria and the supporting documentation proves the information given to us, we apply.

Dird

kingstreet wrote: »

Lender calculators are programmed to calculate mortgage costs at future rates

So that would mean calculating at x% variable rate although on a 5 year fixed? Makes sense somewhat to balance with when the fixed period ends~

kingstreet

Rate stressing means picking a rate of maybe 7% and embedding it in the calculator and only accepting as affordable if the applicant appears capable of managing at that level.