Shared ownership - staircasing

Haddenham35

Looking for some advice on staircasing in shared ownership schemes.

Last year, my partner & I purchased 75% of a property through this type of scheme - so we have a mortgage to cover this and we pay rent to the housing association on the remaining 25%.

We've been told by the housing association that we can staircase up to the full 100% if we want - which we would like to do so that we are paying off a mortgage rather t 'dead rent' going to the housing association.

I've spoken to our mortgage provider and they said that we can port out mortgage rates without incurring any extra fees.

Problem is I'm struggling a bit with the finances. To purchase the remaining 25% of the property, does that mean that we need to put down another 15% deposit on the remaining 25% of the property price?

When I spoke to the mortgage provider he said we needed to just get up to 85% of the mortgage with them, but that just confused me a little.

Any advice you could give would be great,

Thanks

Prohorenkovs

When it comes to staircasing, most people do it by extending their mortgage, plus any bits they've managed to save as a deposit.

To my knowledge, your lender will only allow you to extend the mortgage if you can afford it, which usually means having paid off a bit of the original mortgage, or a big change in your financial situation. I assume the latter, if you've only owned for a year.

So to purchase the other 25%, you'll need to get your lender to agree to extend your mortgage, from 75% that you have now, to 85%. The reason they said 85% is because you can't have a 100% mortgage on a property. And then the remaining 15% will need to be covered by a deposit. Basically like it would if you were buying 100% of the house from scratch.

Haddenham35

So essentially they will lend us another 10%? and we need to find the additional deposit through additional savings and equity?

If the property is worth £250,000 - does that mean we need to raise 15% of that?

Prohorenkovs

That's how I understand it, yeh. Banks/lenders won't give you a mortgage for the entire property - most go up to 85% (not including help to buy mortgage guarantee schemes, which isn't applicable here).

That's why they will only go up to 85%. The remaining 15% will need to be through savings.

If it's worth £250,000, that means the share you're buying is worth £62,500. If I've figured it correctly, the bank will cover 40% of that (10% of the remaining 25%). You will need to raise the rest. So yes, 15% of £250,000, which is £37,500.

Just to repeat - this is my understanding! Please do double check. I'm actually going through shared ownership myself, or at least, deciding whether it's right for me (I've been offered a property). I've done a lot of reading on staircasing, so I think I have a good handle on it, but I'm no expert.

marksoton

Bear in mind depending on your contract you may have to foot the HA's legal fees etc as well.

Haddenham35

Thanks so much for your help.. really appreciated.

Just a thought - the £37,500 is the total deposit for the house - and we've already paid £27,000 - so would that just be £10k left to raise?

An additional point is due to eligibility criteria we had to go on a 16 year mortgage, where we are paying well over £1k a month to pay off the mortgage. Would we be able to use this equity towards the £10k we need?

Prohorenkovs

Ah, that explains how you're able to staircase so quickly! You're paying your mortgage off in huge sums.

Have to be honest, you're now entering an area where my knowledge is very limited - equity from mortgages etc. So I can't really help you there. Apologies.

As an aside, what are your thoughts on shared ownership? Is it worth it?

marksoton

Haddenham35 wrote: »

An additional point is due to eligibility criteria we had to go on a 16 year mortgage, where we are paying well over £1k a month to pay off the mortgage. Would we be able to use this equity towards the £10k we need?

I know it's hindsight now but why the hell did you choose SO if a year later you're able to purchase 100%...?

Prohorenkovs

marksoton wrote: »

I know it's hindsight now but why the hell did you choose SO if a year later you're able to purchase 100%...?

Tbf, that's not a bad tactic. Gets you on the housing ladder, and presumably in a nice property, quickly, rather than having to wait to save.

I deliberately applied for a shared ownership property that I knew I could buy outright in 2-3 years for that reason. Gets me on the housing ladder, with some equity etc. I didn't get it, but I applied because I knew I could get 100% quickly.

kingstreet

Forget about what deposit you paid originally and what you paid for the property.

The issue is the current total value and the value of your equity.

If your lender will allow you to borrow upto 85% (some will do 90% for purchase of equity, so check) your new mortgage can be 85% of the current value as agreed with the HA. You usually need to pay for a RICS Chartered Surveyor to value it.

If your current equity (value of your share - current mortgage balance) doesn't equal 15% of the current total value you will have the option of adding some savings to help you hit the target.

marksoton

Prohorenkovs wrote: »

Tbf, that's not a bad tactic. Gets you on the housing ladder, and presumably in a nice property, quickly, rather than having to wait to save.

I deliberately applied for a shared ownership property that I knew I could buy outright in 2-3 years for that reason. Gets me on the housing ladder, with some equity etc. I didn't get it, but I applied because I knew I could get 100% quickly.

I'm not having a go, just perplexed. It's an expensive and complicated way of doing it for the sake of one year.