Shared ownership - staircasing

kingstreet

Prohorenkovs wrote: »

I deliberately applied for a shared ownership property that I knew I could buy outright in 2-3 years for that reason

In certain areas, marketability remains better when the property is left as shared ownership, rather than staircased to 100% ownership.

Get marketing advice on the area from local EAs before you decide to do this.

Haddenham35

Wasn't through choice markoston - we wanted to purchase 100% last year but the criteria of the shared ownership scheme was that we could buy a maximum of 75%.

So that is why we're also looking to staircase quickly, so we can get out of this and own the property outright.

So essentially, I need to have 15% of the current value of the property through a combination of the deposit already put down (£27k), the equity in the property (say £8k) and then savings on top? Plus fees to consider also.

Prohorenkovs - the pro of shared ownership was a really nice new build at a good price. The con is all the faff that went with that. We haven't had a great experience (hence why I am also very very keen to own 100%)

kingstreet

You cannot look at the deposit you put down previously as its relationship with the current value is negligible.

You need to work with current value of your share minus the outstanding mortgage balance and how that equity compares to the current total property value.

For example, if you bought a share and it's now worth £130,000 and your mortgage balance is £80,000 your equity is £50,000. It doesn't matter about how much deposit you put down and how much you borrowed at the outset.

If the current total value is £250,000, your £50,000 equity is 20% of the total, so you'd need a £200,000 mortgage and that is 80% of the property value.

Prohorenkovs

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.

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Quote not working on phone. Annoying.

Interested in learning more about this, because this is what I don't know about shared ownership. How does a lender decide if I can extend my mortgage to buy a bigger share? Is it purely how much of my current share I've paid off?

For example, if I buy a 30% share of £260,000 (£78,000), and two years later want to staircase, what factors are required for me to increase to, say, 50%?

brit1234

Surely its better to pay off a larger sum of the mortgage first especially if we are entering a down turn. If prices fall the less you will have to pay to stair case. If you pay down the mortgage quicker in the mean time, the less your mortgage repayments will be too.

kingstreet

Prohorenkovs wrote: »

Interested in learning more about this, because this is what I don't know about shared ownership. How does a lender decide if I can extend my mortgage to buy a bigger share? Is it purely how much of my current share I've paid off?

For example, if I buy a 30% share of £260,000 (£78,000), and two years later want to staircase, what factors are required for me to increase to, say, 50%?

The loan to value (how much equity you have and how much savings you want to put in, if any) and your affordability for the increased mortgage.

What is the total cost of the share you want to buy and what mortgage amount will you need in total.

That is how it works.

Haddenham35

Our initial mortgage loan was approx £149,000 against a property value of £235,000, to purchase 75%. Our 75% was worth £176,250.

Since the purchase we have paid off approximately £10,000 of this.

We want to buy the remaining 25% of the property which, taking into account house prices in the area, will be 25% of approx £250,000 - so say £62,500.

I'm still really unsure what that means though in terms of equity and what we can afford.

booksurr

Haddenham35 wrote: »

Our initial mortgage loan was approx £149,000 against a property value of £235,000, to purchase 75%. Our 75% was worth £176,250.

Since the purchase we have paid off approximately £10,000 of this.

We want to buy the remaining 25% of the property which, taking into account house prices in the area, will be 25% of approx £250,000 - so say £62,500.

I'm still really unsure what that means though in terms of equity and what we can afford.

so you need to pay another 62,500 to buy that 25%

your current mortgage is 149,000 - 10,000 you say you have paid off, so you have an existing mortgage of 139,000

you now need to increase that mortgage by 62,500 to 201,500. That gives a LTV of 81% (ie 201.5/250) so is within the 85% limit allowed by your lender

However, whether the lender agrees you can afford a mortgage of 201,500 is down to the lender's affordability calculation based on your income, your outgoing and how much (if any) cash deposit you are putting into it this time so you don't actually need the extra full 62,500

Haddenham35

Really appreciate that help, i finally get it! First things first, I need to get the property revalued and then I can take it from there. Thanks again.