shared ownership negative equity staircasing?

elliotwave

How does SO staircasing work when in negative equity? If I want to staircase, and the property has gone down in value, the current mortgage is wrapped up with the owner and HA taking their respective losses at their "owned" %, the property is valued by the HA surveyor, and a new mortgage created at the new lower value with the increased owner % ?

Also...I believe there are different ways of staircasing? I have heard of an easier way of staircasing where you do it in smaller increments without effectively selling/wrapping up the existing mortgage, valuing etc etc, but just adjust the mortgage payments and rent based on new %'s. Is this still out there and if so, it's much more favorable if there is negative equity as you could effectively staircase at increasingly lower property valuations?

Elfbert

I don't understand what you mean.

If, say, you bought 50% of a property valued at £100,000 and paid £50,000 for it originally, but you are now in negative equity, yet you want to buy another 20% of the property then the 'new' 20% would cost 20% of the new value (for arguments sake, let's say it's now valued at £80,000, so 20% is £16,000) then you would pay the £16,000 and then own 70% of the property.

I'm afraid I can't help you with the staircasing methods - ask your HA?

Hoploz

The % remains the same regardless of valuation.

Your mortgage product may be able to be adjusted or you may need to start again with new loan - ask your lender how they would suggest is the best way to go about it.

elliotwave

Elfbert wrote: »

I don't understand what you mean.

If, say, you bought 50% of a property valued at £100,000 and paid £50,000 for it originally, but you are now in negative equity, yet you want to buy another 20% of the property then the 'new' 20% would cost 20% of the new value (for arguments sake, let's say it's now valued at £80,000, so 20% is £16,000) then you would pay the £16,000 and then own 70% of the property.
HA?

I thought it worked differently. Is in not the case that when you staircase you are effectively selling and buying all over again at the new valuation? So taking your example....

First mortgage:-
property valuation £100K and 50% ownership..
YOU (£50K mortgage)
HA (£50K equity)

Second mortgage (due to staircasing):-
valuation is now £80K and 70% ownership
YOU (£56K mortgage)
HA (£24K equity)


What I'm uncertain of is...do you have to physically pay the £10K negative equity shortfall from the first mortgage before you can take out the new mortgage after staircasing?

ReadingTim

elliotwave wrote: »

I thought it worked differently. Is in not the case that when you staircase you are effectively selling and buying all over again at the new valuation?

But who are you selling to, and buying all over again from? No-one!

You can only buy what you don't have from the person who does have it, at the market value at the time. There's no third party.

elliotwave

ReadingTim wrote: »

But who are you selling to, and buying all over again from? No-one!

You can only buy what you don't have from the person who does have it, at the market value at the time. There's no third party.

So there is no such thing as negative equity with shared ownership if you are staying put and staircasing then? You simply staircase and remortgage at the lower valuation?

Yes. you have to pay for the property valuation but still, if you have a SO property you actually want negative equity then?

eddddy

elliotwave wrote: »

if you have a SO property you actually want negative equity then?

Mmmm - not really.

- Your 50% share of the property has decreased in value...
- And the HA's 50% share of the property has decreased in value...


So (good news) you can can buy some of the HA's share more cheaply...
But (bad news) you've lost money on the share you've already bought...

elliotwave

eddddy wrote: »

But (bad news) you've lost money on the share you've already bought...

but only in as much as you were paying capital + interest on the higher valuation for the length of time before you staircased. It's not like if you move and sell and have to wrap up the mortgage and actually pay any neg equity shortfall. So you're not actually losing any money and you are increasing your % age at a lower valuation ... so I would still say that you want that negative equity?

elliotwave

ReadingTim wrote: »

But who are you selling to, and buying all over again from? No-one!

You can only buy what you don't have from the person who does have it, at the market value at the time. There's no third party.

The bank? Until a mortgage is paid off the bank 'owns' the property (or your share) right? But you are saying that there is no negative equity payment made in order to move from the old mortgage to the new mortgage after staircasing?

Also presumably the HA is losing out each time you staircase at a lower market valuation as they will have boaught and paid for the property at the market value when the property was first built?

Bogalot

elliotwave wrote: »

The bank? Until a mortgage is paid off the bank 'owns' the property (or your share) right? But you are saying that there is no negative equity payment made in order to move from the old mortgage to the new mortgage after staircasing?

The bank has a charge on your property, they do not own it.

Your options are to take out additional lending to cover the share purchased (leaving the current mortgage as it is, although you would need the lenders permission to do this), or to remortgage for the value of the existing mortgage plus the cost of the new share.

rtho782

elliotwave wrote: »

First mortgage:-
property valuation £100K and 50% ownership..
YOU (£50K mortgage)
HA (£50K equity)

Second mortgage (due to staircasing):-
valuation is now £80K and 70% ownership
YOU (£56K mortgage)
HA (£24K equity)

Let's adjust those numbers to be more realistic.

Purchase time, 100k property, 50% ownership.

10% deposit, 90% mortgage.

You: 5k
Bank: 45k
HA: 50k

Current situation, property only worth 80k, let's say you've been on intrest only so your mortgage hasn't gone down.

You: -5k equity
Bank: 45k
HA: 40k

If you want to buy a further 20% (which the HA will sell you for £16k) you need £16k. Except, that no bank is going to let you take your mortgage to 61k on what will be 56k equity, so you then need to find enough cash money to bring your mortgage to 90% LTV or lower.

This means you'd end up at:

You: 5.6k equity
Bank: 50.4k mortgage
HA: 24k equity

Effectively, in order to do this, you have to take yourself out of negative equity, as the bank will never agree otherwise. So, you would, in this scenario, need to find £10.6k cash.