Fixed rate mortgage and staircasing

Home2011

Hi all,
Anyone knows what's the deal with fixed-rate mortgage and staircasing? With interest rates so low at the moment, we're looking into getting a 5 year fixed on a shared ownership purchase, but unsure what effect that would have if we were then to buy an additional share before the 5 year fix is out? Would that be possible and how would it work? Get another separate mortgage on the additional share, or add the loan to the existing mortgage? Or would we have to remortgage and face early redemption charges? 
Many thanks
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CrazySexyCool

Hi,
I have a shared ownership property, and am hoping to staircase this year. However, I am out of my fixed deal and on the SVR.
Anyway, from my understanding, if you are still on your fixed deal you should have the following options:
(1)  Take out a second mortgage to purchase the additional share
       I think that then at a time when both fixed deals come to an end you could remortgage to combine the two.
(2)  Depending on the amount of equity you have at the time when you choose to staircase, you may be able to extend your 
       existing mortgage by taking out an additional loan to cover the cost of purchasing the additional share
(3)  Some lenders may treat the staircasing as a house move, so if the mortgage is portable that may be a further option

I am not an expert though, and would advise asking potential mortgage lenders about this. From getting my original mortgage, I know that lenders have very different attitudes to shared ownership; and so may have very different ways of treating your potential future situation. So it would be worth your while asking about this before deciding on your lender.

Hope that helps! 

haras_n0sirrah

I am a shared ownership mortgage specialist (My former username was haras_nosirrah but can't get into my old account after the changeover) and I have been a specialist shared ownership advisor for 13 years.
One of the questions I ask clients is if they are intending on staircasing. If you staircase mid mortgage term the lender will treat it as additional borrowing and some have a 20% deposit requirement for a further advance whereas with a remortgage combined with a staircase you can do 10% deposit.

If you are considering staircasing then I wouldn't tie in longer than you think you may be able to do so. If you do a 2 year you can always refix after this term if you aren't in a position to staircase.

[Deleted User]

Interesting, I was thinking the same as OP for my purchase - 5 year fix and then additional lend after year 2/3 (on a 2 / 3 year fix) to staircase, then re-mortgage away after the 5 years (and possibly staircase again at that point).

I've seen a lot of haras' posts and that does put a new perspective on it. I suppose if you're really wanting and able to staircase, but your current lender won't lend extra for any reason then you're also screwed if you take the 5 year approach - either pay ERCs or wait (and carry on paying rent on a part you could've otherwise owned)

Other benefit if you were to re-fix is that you would be eligible for incentives etc. again at the point of re-mortgaging (e.g. cashback) which may cover the costs. Also any broker incentives (topcashback/quidco or similar, although that only works if you want to use one of the 'bigger' firms and it's right for your situation). 

haras_n0sirrah

What I do with my clients is about 4 months before their fixed rate expiry is to book a chat and see what they are hoping to do. If they want to staircase we do the maths, check credit reports and income and if looks doable they get the valuation done and hopefully staircase. If they aren't staircasing I will rebook to 3 months before, compare what their existing lender can offer against the rest of the market including remortgage costs and based on that they either do a product transfer or change lender if financially it is better to do so. 

Home2011

haras_n0sirrah said:

I am a shared ownership mortgage specialist (My former username was haras_nosirrah but can't get into my old account after the changeover) and I have been a specialist shared ownership advisor for 13 years.
One of the questions I ask clients is if they are intending on staircasing. If you staircase mid mortgage term the lender will treat it as additional borrowing and some have a 20% deposit requirement for a further advance whereas with a remortgage combined with a staircase you can do 10% deposit.

If you are considering staircasing then I wouldn't tie in longer than you think you may be able to do so. If you do a 2 year you can always refix after this term if you aren't in a position to staircase.

Thanks for the info.
What confuses me though is this business with deposit needed for further advance?
A friend did her staircasing a year ago, and midterm of her existing mortgage, and she didn't have to put any additional deposit, since she already had enough equity?! She was also offered to add the additional borrowing to her existing product or take a separate mortgage, which she did. She even got a better rate on her second mortgage. I mean I would assume that by the time we come to staircase we'd have some additional equity as well?
Can you please reflect on this?

Also, the reason we'd look to fix for 5 years is because interest rates are so low at the moment, whereas in 2 years time they could be anywhere... not sure that possibility of staircasing is enough of incentive to risk it?

Thanks

Home2011

PS. apologies to everyone for not replying earlier, but I am not getting any notifications atm and can't figure out how to set them up in this new forum, can someone please advise? Thanks

haras_n0sirrah

Your equity can be used towards the deposit so you may not need to put any more down. It all depends on the figures.
What I mean is that if (for example) you were tied into barclays for 5 years. After 2 years you wish to staircase however only have 15% equity for your share. For a further advance barclays are a 20% deposit wheras if you were with a different lender switching to barclays it would be 10%. Barclays treat further advances differently to new business and a lot of lenders are the same

Home2011

haras_n0sirrah said:

Your equity can be used towards the deposit so you may not need to put any more down. It all depends on the figures.
What I mean is that if (for example) you were tied into barclays for 5 years. After 2 years you wish to staircase however only have 15% equity for your share. For a further advance barclays are a 20% deposit wheras if you were with a different lender switching to barclays it would be 10%. Barclays treat further advances differently to new business and a lot of lenders are the same

Thanks once more for the explanation. I think in our circumstances it is probably better to go for a longer fix... I would rather risk not be able to staircase before the fix period ends than to face earlier remortgage at unfavorable rates. Each to their own :-) 

amandacat

When I was in a fixed deal and staircased, I had to take out additional borrowing and it needs to be with your existing mortgage lender. This means having to take whatever their additional borrowing rate is, you don’t have access to their different mortgage rates. It’s fine if their additional borrowing rate is low but when I did it (was years ago now) the rate was 3.99 and mortgage rates were around 2% at the time. Just be mindful of this, mine was Santander. Maybe other lenders are different though. 
In terms of equity I needed 15%, I think I was £800 short and paid this from memory.