To Staircase or Not (Shared Ownership)

mzeep

Hi All,

I am in a fortunate position to have bought a one bedroom shared ownership property in an 'up and coming' area of London a couple of years ago.

At the end of my two year fixed mortgage, I decided to investigate the possibility of staircasing from 75% to 100%. The RICS surveyor valued the property at 50% more than what I paid for it two years previously. While this is outrageous, I accept that London's house prices are ridiculous (and that ultimately it is in my favour).

My current lender has confirmed that I am able to borrow the extra lending to purchase the final 25%. However, I am now wondering whether I would be better off staying with 75% as:
i) the mortgage payments will be £230 a month more that I am currently paying (over and above the saving in rent to the housing association).
ii) I also need to think about the legal costs and SDLT that I will need to pay (estimated at circa £1,500).
iii) most worryingly, while there is a chance that the property value could increase further, there is also a risk that it could decrease in value (back towards the original value), and I would therefore take the hit (and lose out on the mortgage cost saving).

Note, regardless, I plan to take out a 5 year fixed mortgage, and will then probably look to sell.

What are people's views on this situation? I am aware that there are benefits to owning the property outright (particularly now that the government allows the pre-emption clause to be removed on final staircasing), but not sure about the extra costs and risks.

:money:

libf

Will it be easier to sell a 75% share than a 100% share? If you're already planning on selling then that's probably your biggest consideration, followed by the cheapest way to live in the meantime.

mzeep

Good point libf. I didn't think about that. Only eligible households will be able to apply to buy the 75%. However, anyone could put in an offer it's 100% mine. Though these offers would be based on what someone is willing to pay for it rather than a surveyor's valuation.

RichyRich

Who did your staircasing valuation? If it was the housing association's 'preferred' valuer, it's possible that they overvalued it in the HA's favour.

We staircased last year and sought advice from a solicitor who specialises in shared ownership. He told us that you are entitled to use any RICS accredited surveyor you choose and even told us a story of one client of his who instructed several valuations from different surveyors (at his own expense) and submitted the lowest one to the HA. While the HA is free to reject a valuation we were advised that they are unlikely to do so because (a) the valuation is independent and (b) because most HAs are clueless and understaffed. The risk of course is that if you've already instructed the valuation through the HA the surveyor might have already released the valuation report to them which will put you somewhat on the back foot, in which case you might benefit from a chat with a solicitor who specialises in this type of housing conveyancing.

The other thing to consider is remortgaging at the same time. We did that and benefited from the wider range of mortgages available to 100% owners as compared to shared ownership properties.

To put this in perspective, we originally bought 25% of our property in east London in 2010 for 25% of £225,000 financed by a 5% deposit Shared Ownership mortgage with the Leeds & Holbeck Building Society at a horrendous interest rate north of 6% (suffice to say we were somewhat relieved when it dropped—yes, dropped—to the SVR). We got a valuation from a local surveyor in 2014 valuing the property at £260k and remortgaged to a deal at 2.49% with the Nationwide at the same time. Nationwide used their own valuation — which was considerably more than the surveyor's valuation — to lend against, which put us in the 75% loan-to-value bucket, and we're now paying considerably less in mortgage repayments than we were in rent and mortgage payments combined. While 2.49% is not the cheapest mortgage on the market, NW were one of the few lenders who would use their own valuation rather than the purchase price in the event that the purchase price is lower.

Long story short: speak to a good solicitor who specialises in this very niche area of housing (there are a few around) and get a good mortgage broker!

libf

mzeep wrote: »

Good point libf. I didn't think about that. Only eligible households will be able to apply to buy the 75%. However, anyone could put in an offer it's 100% mine. Though these offers would be based on what someone is willing to pay for it rather than a surveyor's valuation.

More people will be able to afford 75% though...

mzeep

Thank you RichyRich. Glad to hear staircasing worked out for you. I actually formally challenged the surveyor's valuation, but they stuck to their guns (I imagine in name of credibility). Though I would like to see evidence of any other property in my area increasing by 50% in 24 months. I believe I can instruct another independent surveyor, though I'm reluctant to spend more money (I already had to pay an admin fee to use the HA's panel surveyor ). I've been offered a relatively good rate to remain with my current lender (which was also the advise of my broker). So I think it's the increase in value that is creating the issue for me. I'm just worried that the survey is on the optimistic side...though like I say, London's house prices are crazy stupid. :eek:

mzeep

Good point again libf! I guess I need to think about this some more...though I'm currently on the variable rate, so my procrastination is costing me :mad:

RichyRich

I wouldn't like to say whether a 75% or 100% ownership property would be more marketable, but I know which has the wider audience for sale given the significant restrictions on who is eligible for S.O.

I think you need to think less about similar price increases in your immediate area and more about current value of properties. For example if you got a really good deal on your first 75% it might not be so much that your property's increased in value by 50% as much as pricing the rest realistically. I'm not saying that's definitely the case, of course, but if the valuation you got is in line with other similar one-beds in the same area then it could be an explanation.

We did well out of S.O. despite all the advice not to do it but I dare say buying the whole property is not for everyone. Only you know what you can afford and nobody can predict the future of the housing market. The truth is we would not have done so well out of it if we hadn't had our solicitor and broker advising us on the twists and turns of this very rocky road!

Whatever you decide I wish you very well and hope that whatever decision you make it works out for the best for you.

Pixie5740

Have a look at sold prices for similar properties nearby. That should give you a good indication as to whether the survey is in the right ballpark.

You can get sold prices from Zoopla but make sure you're looking at actually sold prices and not Zoopla's wackadoo price predictions.

libf

mzeep wrote: »

Good point again libf! I guess I need to think about this some more...though I'm currently on the variable rate, so my procrastination is costing me :mad:

It's worth a check of your lease to see if you still need to give the housing assocation (or whoever is the current owner of the 25%) first refusal on buying the property back for a period after you staircase to 100% too. I think some people have posted on here that that's caused them delays when trying to sell.

Shenl0101

libf wrote: »

It's worth a check of your lease to see if you still need to give the housing assocation (or whoever is the current owner of the 25%) first refusal on buying the property back for a period after you staircase to 100% too. I think some people have posted on here that that's caused them delays when trying to sell.

Lots of wrong information in this thread.


The right of first refusal doesn't exist anymore for Shared Ownership leases that not subject to local authority restrictions in certain rural areas. This was abolished across the board earlier this year.


You don't have to use the HA's valuer but they are RICS and therefore are not going to give a value to benefit the HA - it's total rubbish to think that and you can just offer your own RICS valuation if you felt like it anyway.