Shared ownership staircaising affordability (and a thank you)

cjv

Good evening all,
It has been a while since I have posted on the forum and I would like to open with a long overdue thank you, to all of those who have given advice and information, past and present across all sections of MSE.
It really has had a big impact on my life.

Long story short: 4 years ago, I had zero savings and an extremely poor credit history. I stumbled across an article on here about rebuilding a credit file and applied for an Aqua credit card. From this small step, and many others along the way, I am now the proud owner of a shared ownership property and am planning to staircase at the end of my fixed term Mortgage!

Thank you so much, for your input, help, advice and guides.. In particular the savings/investment, credit history, banking, mortgage and house buying sections of the forum.

I am currently trying to plan my next step, shared ownership staircasing. I have used the excel calculator, and done some research into my maximum affordability for my increased share, but am still unsure of my purchasing power and would be most grateful if any mortgage advisors could give me an indication of the new share I can afford on the following basis:

Fixed mortgage until July 2021 with Halifax 2.84% £63,750 (£75,000 40% share) current balance £61,800.
Gross salary £27,500
Debts are zero.
Savings £10,000 (plus extra to cover legal fees)
FMV £187,500 (approx) may have increased slightly.
It was a new build at time of purchase July 2019.
Rent currently £257
Service charge £122
Credit files are all in good shape

MovingForwards

@haras_n0sirrah is a shared ownership broker who posts on MSE, perhaps she will be able to say what's viable.

blue_max_3

The rent is only £257 a month on the 112,500? That seems incredibly cheap. At 2.84% that would cost £524 a month on the mortgage over 25 years.
In your situation, I'd wait and see what happens to the property market. If there turns out to be a significant drop, you may be better buying more at the lower valuation. I wouldn't be rushing into it at this time, especially with such low rent. Better to save your cash.

gabby71

Well done! Great achievement 😊
i’ve been working hard at repairing my credit file and also tried for a shared ownership properties a few months ago, unfortunately it seems the lenders available for shared ownership with adverse credit don’t lend for the Welsh government shared ownership scheme so I couldn’t proceed 😕

haras_n0sirrah

Hi - I am the resident shared ownership specialist on the boards.
Gabby if you want to look into that let me know - I have done mortgages on shared ownership for people in Wales and always happy to look into options for people.
Re the OP - based on what you have put I would expect around a 70 - 75% share would be doable obviously subject to the purchase price of the property at that point in time
If you want to staircase that high you need to have a realistic chance of going for the 100% at a later stage - you don't want to try to sell a 70 or 75% share in the property in the future as it will make it less attractive as a shared ownership. If you think you will be able to get to the 100% at some point then a partial staircase could be smart as it would mean no stamp duty for that part (stamp duty kicks in on the transaction taking you over 80% ownership) but as I say you wouldn't want to get stuck at the higher levels so if you don't think staircasing to 100% is likely I would instead overpay and then move to the open market when you have sufficient equity

cjv

haras_n0sirrah said:

Hi - I am the resident shared ownership specialist on the boards.
Gabby if you want to look into that let me know - I have done mortgages on shared ownership for people in Wales and always happy to look into options for people.
Re the OP - based on what you have put I would expect around a 70 - 75% share would be doable obviously subject to the purchase price of the property at that point in time
If you want to staircase that high you need to have a realistic chance of going for the 100% at a later stage - you don't want to try to sell a 70 or 75% share in the property in the future as it will make it less attractive as a shared ownership. If you think you will be able to get to the 100% at some point then a partial staircase could be smart as it would mean no stamp duty for that part (stamp duty kicks in on the transaction taking you over 80% ownership) but as I say you wouldn't want to get stuck at the higher levels so if you don't think staircasing to 100% is likely I would instead overpay and then move to the open market when you have sufficient equity

Thanks for that, I did not consider the potential difficulty selling a larger share later on. I do plan to staircase to 100% in the future, but you never know what changes lie ahead so I may go for 60-65% with a plan to jump to 100% next time I staircase.

If the property is desirable and in a prime location does that improve the chances of selling a 75% share if it came to it?

I opted to pay stamp duty on the FMV at the time of purchasing my share (it was zero stamp duty), so that won't be a problem.

cjv

blue_max_3 said:

The rent is only £257 a month on the 112,500? That seems incredibly cheap. At 2.84% that would cost £524 a month on the mortgage over 25 years.
In your situation, I'd wait and see what happens to the property market. If there turns out to be a significant drop, you may be better buying more at the lower valuation. I wouldn't be rushing into it at this time, especially with such low rent. Better to save your cash.

I have considered this, but would rather be putting more money into equity than rent. If I buy more shares the monthly mortgage increases, but the rent reduces so it won't be much of a difference in my total housing costs.

I have around 11 months to see what the local property market is doing, so I can take things into account closer to the time.

getmore4less

The rent is only £257 a month on the 112,500?

That's 2.74% not that cheap,  depending on LTV renting the money could be cheaper. 

Halifax charge more for the smaller loans <£100k so watch for that.

That initial 85% rate is high I would also look at what is needed at the end of the fix to secure lower rates.

blue_max_3

cjv said:

I have considered this, but would rather be putting more money into equity than rent. If I buy more shares the monthly mortgage increases, but the rent reduces so it won't be much of a difference in my total housing costs.

I have around 11 months to see what the local property market is doing, so I can take things into account closer to the time.

You could overpay on your mortgage if that is allowed. 

getmore4less

at the moment renting the money is about the same as the rent so no difference until you get the mortgage rate down.

annetheman

Well done OP, hope your staircasing is smooth and successful - if there is somewhat of a crash next year or prices do drop, you will be in a good position to buy at a lower price. 

I wondered if @haras_n0sirrah or anyone else can advise similarly on staircasing - I did eventually intend to staircase to 100% (purchasing 50% share now, lease as yet unsigned).

With the new SO rules announced yesterday that will allow purchasing increments of 1%, would it be feasible to staircase to 99% and just stay there until I want to sell? 

The reason I would want to do that is primarily because I could continue to not pay ground rent (I am hopeful Jenrick will finally get on with zero-ing them all as promised for years). The ground rent in my prospective lease is £150 to start but in 2029 will increase by the usual current index by RPI.

What do you think are the downsides of doing this?