Shared Ownership remortgage - buy more shares or overpay?

seb2018 · 19 May 2018 at 11:19PM

Hi guys,

My 2 year fix is coming to an end in the next few months and I am really struggling with making a decision on how to proceed. Have read all the articles on MSE and used calculators etc but still unsure!

Backstory:

Purchased a 25% share of a £637k 1 bedroom property in Central London (zone 1-2) in October 2016, although my bank downvalued to £600k so I had to make up the difference
Since then, my salary has increased quite significantly and I have approximately £35k cash saved at my disposal
Monthly rent is £415 and monthly mortgage payments are £420
From 2020, there will be a zone 1 tube station within 5 minutes walk (currently a 12 minute walk from a zone 1-2 station) and a brand new shopping centre/public space (Battersea Power Station)
I would NEVER be interested in owning 100% of this property - long story short shared owners (even after staircasing to 100%) at this development do not get the full set of benefits (gym, cinema etc), and so it wouldn't make sense to staircase to 100%, as if you could afford 100% you would just buy in another block which has full access
My current plan would be to stay here until at least 2021/2022, and depending on the market maybe sell up shortly after

I am struggling to decide whether I should staircase (anything from 35%-50%). I wouldn't go higher than 50% because I imagine it would then start getting difficult to sell, or just lump sum overpay my mortgage as much as it will allow (currently 10% of the balance per year), or alternatively a combination of both.

I know no one really knows what is going to happen with Brexit around the corner, but based on people's experience (this was my first property purchase!) of the market I would really appreciate any opinions you have. On one hand I know house prices in London are fairly static at the moment, but on the other hand I would imagine the new tube station/BPS will help. But having said that, it was semi-factored into the original purchase price to begin with!

Any advice would be much appreciated

dimbo61 · 19 May 2018 at 11:29PM

You have a mortgage debt
I would overpay that first and worry about a bigger percentage of the flat at a later date.
How much are you paying in rent compared to the mortgage.

seb2018 · 19 May 2018 at 11:33PM

Hi dimbo61 - thank you. Apologies that I had forgotten to specify that. Currently my monthly payments are:
Rent - £415
Mortgage - £420

There is service charge as well but it doesn't change based on %.

seb2018 · 20 May 2018 at 1:12AM

@AFF8879 it is indeed a good deal. To be fair, there is service charge as well which brings it to just above £1k, but since that amount doesn't change based on % ownership, I didn't specify it

Do you agree with the above RE paying off the mortgage debt before purchasing more?

dimbo61 · 20 May 2018 at 9:04AM

Will buying the next 25% of the property be based on it's current value ?
With property prices in London dropping you may pay less for the next 25% than you did for the first 25%.
However you have stated you don't want to staircase to 100%
I would imagine your mortgage costs would go up more than your rent would decrease !
Your call.

dimbo61 · 20 May 2018 at 9:06AM

PS £600K is the maximum available under Help To Buy in London.
Not saying this makes any difference on your property but maybe the bank decision on valuation

seb2018 · 20 May 2018 at 10:26AM

@dimbo61 - it will indeed be based on it's current value. That's what my thinking was - if the house prices have stayed the same or even decreased, it might be a good time to buy before the tube station is finished etc, to get more 'value' out of the increase that will hopefully provide.

I don't mind my mortgage costs going up higher than my rent goes down, I have enough disposable income to cover it, I guess my focus is more getting bang for my buck - whether that be paying less interest by overpaying or buying a higher share to sell in 3-4 years.

Since it will be based on the bank's valuation, I don't suppose it's possible to say to a bank/sign something that will say 'hey, I will definitely take out a mortgage from you, but the specific product depends on the valuation', and then decide after the valuation? That would be ideal! I know I could pay for my own valuation but there is no guarantee the bank's valuation will match

RE the valuation, unfortunately I think I was just unlucky, speaking to other residents in the building it really looks as though I was the only one this happened to, and there are other flats (even 2 beds) that were over 700k

I didn't want to risk losing the property at the time and choosing another bank, so I cut my losses at the downvaluation.

seb2018 · 25 May 2018 at 10:39AM

Any more opinions would be greatly appreciated

JayRitchie · 27 May 2018 at 4:03AM

That deal on rent / service charge looks really sweet. Any risk of massive increases in the rent? If not I'd overpay the mortgage. Reason:

- the flat will be attractive at 25% as lots of people can afford the repayments/ rent. Looks tougher at 50%
- de-risk your life. If something terrible happened you can use benefits to cover the rent.

Honestly - that rental cost looks like the deal of the century and will be the biggest selling point for the flat.

seb2018 · 30 May 2018 at 2:40PM

Thanks JayRitchie, much appreciated. It is indeed a great deal - and no risk of a huge rent hike. It is capped at being raised once per year, at an upper limit of CPI + 1%.

You make a comparison between 25% being affordable and 50% looking like more of a struggle. Do you think there is a middle ground at, say, 35%, to benefit from the potential price increase the tube station/regenerated area will bring - or would you still suggest it would still be better to stay at 25% and overpay?

Pulpstar · 30 May 2018 at 9:50PM

Hmm one way to look at it is that the 75% (£450k) not owned by yourself there is a £4980 a year charge on - that is the equivalent of a 1.1% interest only mortgage which can only go up by CPI + 1 so doesn't even inflate particularly in real terms due to the fact CPI tends to undershoot real inflation (IMHO).

It's a staggeringly good deal to be honest - no point taking out any more ownership than the current 25%.

Shared Ownership remortgage - buy more shares or overpay?

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