How do you afford to staircase on shared ownership

philandfern777

Hi,

I am hoping someone will know the answer to my question.

I am interested in buying a SO property-30% for £66k. On the open market it is worth £258K.
My question is my current salary caps me at £150K for a mortgage. If my salary didn't increase at all in 20 yrs. How do I afford to buy more shares in the house as my current salary would not allow me anymore than £150K. My worry is that I will never afford 100%. i.e how can someone who is only able to buy at £150K have a mortgage on a house that is worth £258K?
I am a FTB. Salary may increase but guaranteed. Single salary.

I hope that makes sense!

Thank you

00ec25

philandfern777 wrote: »

how can someone who is only able to buy at £150K have a mortgage on a house that is worth £258K?

they can't

surely you can see that for yourself. Either you get married and have 2 incomes or you get a better paid job or you trade down and buy somewhere cheaper using the equity in your current property by selling it..
That is how everyone moves "up" the property ladder. There is no magic wand that creates money

Klr005

Hi

I wondered this when we bought our house on shared ownership.

We bought a 60% share in 2015 and thought that would be it for us. Fast forward 3 years to the end of the fixed term on our mortgage and we staircased to 100%

Its definitely possible.

Its hard to say about a payrise but it is unlikely that you'll stay on your current wage for the duration of your mortgage. Pay rise = borrowing more.

Other ways include cash injection. Savings or inheritence.

You could also remortgage with additional borrowing after a few years so you've paid some money off and can add more to it.

Might be worth adding that lots of Housing Associations don't allow you to choose the amount you want to buy. You have to buy the maximum you can afford based on their affordability calculator. Therefore, if you can get a mortgage on 150k, it's unlikely they will let you only purchase 66k.

Hope this helps.

philandfern777

Thank you. That was the whole point in my question-it didn't make financial sense but others were staircasing & I just wondered how it all worked.
I am a FTB so no current property. Don't want to get married-single salary only. I am a teacher so there is potential but depends on many external factors.

Thankfully someone has a sensible, helpful teply below.....

philandfern777

Thank you so much -all really helpful.

I have asked if I can buy more share i.e 40% instead of the 30% but they said no. However after a year I can increase it so that's not too bad.

Unfortunately my salary will never be that great as I am a teacher & we are capped a bit after a while on our salaries. But you never know.

Can I ask did you just save in order to staircase so quickly or did your property increase in value so equity was released?

Thanks again-really helpful

Klr005

Interesting that they said no to more but at least you know that you will get to staircase at some point as you won't be borrowing the maximum now.

We did save some money to add a bit more but not loads. There were a few other things.
I got a payrise in that time but not a lot to make a huge difference. About 5k.

The biggest factor was that as first time buyers on a new build with a shared ownership property, the mortgage rate wasn't great so we had high ish mortgage payments.
Once we remortgaged, we were no longer first time buyers and the house was no longer considered new build so we were offered more preferable rates, reducing the mortgage payments. And then with the equity in the house, our loan to value decreased giving even better rates which meant that even though we've borrowed more, our mortgage payments have only gone up by £5 per month.

Hoploz

Many years ago i was a newly qualified teacher and bought 70% of my flat. 3 or 4 years later my salary had increased - I was able to borrow more due to the increased salary but also a history of making mortgage payments behind me. I bought the other 30% and owned it outright.

Sandyra

As everyone is saying, salary or overpaying your mortgage. Also don't be afraid to take a hit and leave your mortgage lender and pay the ERC. I'm a teacher and I bought 30%. I got a 6k payrise and my lender in the first year would only lend me enough to staircase to 50%. So I paid £2,000 in ERC went with another lender and staircased to 75%. Also like above has said after a few years of accuring equity and overpaying you get better rates. By overpaying I've reduced my mortgage term by 35yrs to 30yrs. I'm planning to staircase to 100% this October as I change schools and capitalise on inner london weighting.

cjv

Did you account for all your other financial commitments when calculating that you could borrow £150,000? remember to include the future rent you will be paying, service charges etc.

This is what the person who is assessing you will take into account and may be the reason that they will only allow you a 30% share.

I am looking at shared ownership and have been messing around with an excel spreadsheet for different scenarios, levels of debt etc. to see what I can afford.

https://assets.publishing.service.gov.uk/media/58d55b72e5274a06b300000e/Shared_Ownership_Sustainability_Calculator_-_June_2017__FINAL_.xls

brit1234

You could alway get a 30% share and overpay on the mortgage. That way you build up equity, don't have to pay the staircae admin fees and are more protected more from any falling prices. You can always staircase later when the price is lower.

getmore4less

If you can't afford a 100% of a property then something has to change to make that happen(prices rising does not work)

The two main ways are
You find some cash (luck, inheritance, series of bonus, find a special friend that has cash...)
Your income grows so you can borrow more(or that special friend has income).

Those two are the easiest to quantify.

There are other variations but the limiting factor is based on the interest only model(it takes forever to buy)

Using your example(with some guesses).

I am interested in buying a SO property-30% for £66k. On the open market it is worth £258K

30% of £258 is £77.4k ?

Anyway starting point for £260k, if you could borrow all interest only of it at say 2.5% that would be £542pm, if you can afford more than that then you are on the path to owning.

It then depends on the surplus income and how long you have.

Some payments based on long terms to get to

years, 50%(£130k), 75%(195), 100%(260).

50y £651 £705 £760
45y £672 £737 £803
40y £700 £779 £858
35y £736 £835 £930
30y £785 £906 £1027
25y £854 £1010 £1,167

now as you can see with a surplus(£760-£542) of only £218pm you can buy 1/2 the place in y30-y35, 3/4 by y40-435 and the full 100% by y50

now with shared ownership is the rent is not the equivalent of interest only because the share value changes and by the time you come to buy it it may have gone up or down so those number don't work but you get the idea.

What is key at the start is what the rent is for the share you don't own as a % against lending rates if it is below or close to lending rates then ok if more then it is not such a good deal.