Shared Ownership: shall I make extra mortgage payment or save to buy more equity?

I am in my second year of a 24-year £59,000 mortgage, buying 40% of a property worth £200,000. I pay rent on the other 60% at a rate of 1% of the unsold equity per year. Right now both my monthly mortage and rent payments are approx £300 each.

I can buy more equity, minimum 10% at a time, but I can only take maximum 4 steps from owning 40% to owning 100%.

I can also make extra mortgage payments of up to 10% of the outstanding balance every year. I did this in year 1 (i.e. I paid an extra £5900), and have already reduced my payment term by a couple of years.

I have around £8000 in savings and I am trying to decide whether to carry on making the extra mortgage payments when I can, or stop paying them and save everything so I can buy another 10% more of the equity outright as soon as possible, and reduce the rental part of my costs. I don't anticipate my regular income rising, so I don't especially want to increase my monthly outgoings by taking another mortgage.

I am happy to divert most of my savings into ultimately paying off my mortgage and reducing my housing costs. That 1% of the value will certainly be increasing, as I live in a fairly up-and-coming part of central London SE1.

My instinct is to keep making the maximum mortgage payments, and divert any extra to savings for more equity, but that may mean it will be a very long time before I can buy more outright.

Any advice?

Replies

  • comping_catcomping_cat Forumite
    24K Posts
    Part of the Furniture Combo Breaker Mortgage-free Glee!
    Forumite
    Personally, i think i would want to buy more of the property - i supose you would need to buy an extra 20% to get the full benefit.

    What sort of buy back do you have? Is it based on current property prices or the price when you first bought? I think that would effect my thinking, because if its current property price, it would be worth buying more now, rather than once you had paid off your original mortgage as you would then need to pay more for less (if you get what i mean!!) especially if you are in an up and coming area where prices could shoot up.
  • lunasaverlunasaver Forumite
    46 Posts
    Part of the Furniture Combo Breaker
    Forumite
    I think it depends on if you want to move anytime soon.

    I have a 25% shared equity and am trying to pay this off. I was told low shared ownership stakes (up to 50%) are easier to sell as first time buyers snap them up.

    It also serves you well if the mortgage rate goes skyhigh in the meantime.

    If you intend to stay more than 5 years it's probably a different story.

    Hope this helps!

    LS
    February challenge £147.82/145
    March challenge £217.78/£155:j
  • zekepeszekepes Forumite
    121 Posts
    I honestly don't know what is the right thing to do but I would go with paying off the max you can off the mortgage and then diverting any left over money into saving to pay for more equity.

    Nobody can say for certain what house prices and interest rates are going to do and I would keep re-assessing the situation. It may become more obvious that the mortgage should be increased to increase the equity in the future.
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