Shared Ownership Question

CommonPeople1982

Hi Guys / Gals

I have a quick question regarding Shared Ownership which hopefully has an easy answer , unfortunately I haven't been able to find the answer via a Google search so this is my last refuge for information before I speak to an IFA.

I currently own 35% (£73,150) of a property and I am thinking of buying the other 65% (£135,850) from the housing association. My property has risen 10% in value since I purchased my share. Am I correct in thinking that my any gains made on my 35% belong to me?! IE my 35% is now worth £80,465 and does that increase belong solely to myself?

Obviously I would like to use this increase to fund the 10% deposit I need to find on the remaining outstanding amount. I know with Shared Ownership and schemes like this the devil is often in the detail / weasel words of the contracts signed etc.

I read alot about shared ownership home owners going into negative equity but I never read about any one gaining from house price rises, so iam hoping price movement cuts both ways!

I would appreciate any insight into my situation.

Thanks in advance :-)

Mike

Paul_the_Painter

Hi CommonPeople,

Broadly yes, you get the gain in value of your share.

The way it works is slightly different though, or to be more clear you have to look at it from another perspective.

You need to look at how much you want to borrow, against the value of the property on the open market. This gives you your Loan To Value ratio. (LTV)

If you own outright your 35%, you will be looking at 65%(or above) Mortgage deals. Assuming that the property is valued by the bank at the same amount as the Council/Housing Association values it.

If you do not own outright "your" 35%, you simply need to add up your outstanding mortgage amount in pounds, plus the amount that the HA wants for their share. Then divide by the open market value of the house, to give you the LTV. If this is below 90% you can look at 90% LTV mortgages.

Hope that makes sense!

CommonPeople1982

Hi Paul

That does make good sense. Given the current rises in prices combined what I have paid so far in capital and the savings I have. I believe I will have a nice 10% deposit come the end of the year when my fixed rate on the 35% mortgage expires.

Am I correct in thinking because I going to buy the whole property with a mortgage of 90% Loan to Value, I can look at getting a common market mortgage and not one of these horrendous high APR shared ownership mortgages?

Thanks again :-)

Mike

AdrianC

Yes, of course price movement works both ways. You own a percentage of the property, so you gain from that percentage of the increase in the total value. Which means that, if you want to staircase, you need to pay the percentage of the increased value.

Subject, of course, to the Ts & Cs you agreed to when you bought your share. We can't read that from here.

CommonPeople1982

Thanks Adrian. I am in a fortunate position where the rise in prices on my share alone has closed the gap considerable to being able to buy the rest. So I just wanted to make sure my assertions were correct and I wasn't labouring under any delusions :-)

AdrianC

CommonPeople1982 wrote: »

I am in a fortunate position where the rise in prices on my share alone has closed the gap considerable to being able to buy the rest.

Umm... Show your working! That would only work if you have a guaranteed future-proof price available on the remaining 65%, which would be... unusual.

If not, then the gap has widened. If 1/3 of the property goes up by £10,000, then the entire value has gone up by £30,000, so the other 2/3 of the property would go up by £20,000, would it not...?

CommonPeople1982

Thanks for offering to check my Maths Adrian :-)

The property was worth £209,000 when I purchased 35% of it (£73,150).

The property is now worth £240,000 so my share is worth (£84,000)

So the increase in equity is : £10,850

I need a mortgage of £216,000 with a deposit of £24,000 to cover the £240k

I paid a 5% deposit on the 35% (£3657.5). So if I aggregate the increase and my original deposit. I have £14,507.50. If I add on the capital paid via my monthly mortgage payment I have £3950 by the end of 2016. This in total is £18457.5

The increase has closed the gap. The axiom of this to me is what I can use 100% of the price rise on my share to fund the 10% deposit on the 65% share I don't own. So basically Iam asserting I only need to find 10% of the price rise on the 65% which makes finding the deposit easier as the house price rises. I can appreciate your linear view of the mathematics - I thought I had originally made a mistake on my spreadsheet. Which is why Iam happy for some one else to edify it for me :-)

Mike

Paul_the_Painter

The other way to look at it is this:-

The Housing association will want 65% of 240,000 to buy them out.
So £156,000 to borrow
You currently have (or will have) to pay (£73,150 - £3,657.50 - £3,950 = £65,542.50) to redeem your current mortgage.

So you need to borrow a total of £221,542.50

Assuming house value of £240,000 your LTV comes out at 92.3%
To get a 90% LTV you need to get your total loan required down to £216,000

I think in your workings you have essentially counted the increase in value twice.

Ignore where the money comes from when working these things out, all that matters is Loan To Value. I.e. how much you need to borrow, and what the house is worth.

CommonPeople1982

Thats a good shift on perspective Paul. I hadn't thought about it from the angle redeeming the current mortgage. Its good to see the maths from the other way around. Probably the right way around - its easy to get carried away from the other end.

I feel like I have mislead you slightly, I said the gap had closed when I meant narrowed - my bad. Iam aware I still have some monies to save. I believe I have to save around £5600 to close that 2.3% you speak and then find another £2400 for the damned stamp duty, as I deferred the smaller share before. Thankfully I have some of that.

Thanks guys for edifying my numbers / workings and confirming I get the price increase. I guess I will have to check the small print I signed with HA to be certain but I would be surprised if they deviate too far from standards.

Mike :-)

Paul_the_Painter

No problem! On the plus side, there are 95% mortgages out there, but at around 4% - 5% rather than 2% - 3%.