As a shared ownership homeowner, exploring remortgage options can help you increase your property stake or secure a more favourable mortgage deal. This guide will help you navigate the complexities of shared ownership remortgages.
Understanding Shared Ownership Remortgage: How It Works
Before starting your shared ownership remortgage process, it’s crucial to grasp the basics and benefits of remortgaging your part-owned property. In the case of a shared ownership property, remortgaging involves replacing the current mortgage with a new one. The property initially purchased through a government mortgage scheme like the help to buy shared ownership scheme, is owned partially by you and partially by a housing association.
The shared ownership remortgage process enables you to increase your shares, potentially owning the property outright through strategic staircasing. Potentially, you can increase it up to 100%, until you own the property outright. This process is known as shared ownership staircasing.
Shared Ownership Staircasing
Shared ownership staircasing is the practice of gradually increasing your property holdings over time, like climbing a staircase step by step; or in this instance, by purchasing multiple shares at once.
Staircasing may be repeated up to three times. However, the terms and conditions with your housing provider must be checked first as housing associations tend to have different criteria.
There are two key ways you can increase your shares:
- Further Advance: Your existing lender may agree to offer you a further advance to increase your shares in the property. To do this, lenders will typically carry out a property valuation to establish if there’s enough equity. Lenders may also carry out a revised affordability test and will request your most recent proof of income.
- Shared Ownership Remortgage: By switching to a new mortgage lender, you may be able to apply for a larger loan. This means that you can repay your current lender and have surplus funds to purchase additional shares. Valuations and income assessments will also be carried out.
Staircasing and Remortgage: Existing Lender vs. New Lender Options
When you’re ready to remortgage your shared ownership mortgage, one of the first decisions you’ll face is whether to stick with your existing lender or explore options with a new lender. This choice can significantly affect both the terms of your remortgage and your ability to increase your share in the property through staircasing. Here’s what you need to consider:
Existing Lender Benefits:
- Simplified Process: Staying with your current lender may offer a more streamlined process since they already have your financial information and history.
- Potential for Better Rates: If you’ve been a reliable borrower, your existing lender might offer competitive rates or terms to keep your business.
- Lower Fees: Some lenders offer reduced fees or incentives for loyal customers looking to remortgage.
New Lender Advantages:
- Competitive Offers: Shopping around can uncover deals that better suit your current financial situation or offer lower interest rates.
- More Flexible Staircasing Options: Different lenders may have more accommodating policies regarding staircasing, allowing you to increase your share in the property more rapidly or under better terms.
- Access to Specialised Products: Some lenders specialise in shared ownership mortgages and may offer products specifically designed for your needs.
Read: Remortgage Same Lender: A Comprehensive Decision-Making Guide
Sarah's Shared Ownership: Staircasing Journey to Full Ownership
Megan (YesCanDo Mortgage & Protection Advisor)
- Sarah buys a 40% share of a shared ownership property valued at £250,000.
- Her share costs £100,000 (£250,000 * 40%).
- She secures a mortgage for her share and pays rent on the remaining 60% to the housing association.
- Two years later, Sarah decides to increase her share by an additional 20%, bringing her total ownership to 60%.
- The property's value has appreciated to £270,000 at the time of staircasing.
- The cost for the additional 20% share is £54,000 (£270,000 * 20%).
- Sarah arranges a remortgage to cover the £54,000, plus some associated costs such as valuation fees (£500) and legal fees (£1,000).
- After another three years, Sarah is ready to staircase again, aiming to reach 100% ownership.
- The property's value has now risen to £300,000.
- To buy the remaining 40%, she needs £120,000 (£300,000 * 40%).
- Sarah secures another remortgage to finance the purchase, along with additional costs for valuation (£500) and legal fees (£1,000), plus a slight increase in stamp duty due to the property's overall value increase.
- Sarah now owns 100% of her home. She no longer pays rent to the housing association, just her mortgage.
- Total cost of reaching 100% ownership: £100,000 (initial share) + £54,000 (first staircasing) + £120,000 (second staircasing) = £274,000, excluding fees and mortgage interest over time.
- Sarah's investment has grown with the property's value, now fully owning a home valued at £300,000.
Understanding Shared Ownership Mortgages
Shared ownership mortgages are designed for individuals who can’t afford to purchase a home outright on the open market. These mortgages allow you to buy a percentage share of a leasehold property, making the property ladder more accessible.
The property is owned partially by you and partially by a housing association. The percentage you own can be between 10% and 75%, and then you pay rent to a housing association or local council on the part you don’t own.
Remortgage Shared Ownership: Informing Your Housing Association
Depending on the housing association or local council scheme, shared ownership can have varying terms and conditions. Ensure you inform your housing association that you intend to remortgage because they need to agree and can make a small administration charge. They must approve the new mortgage and ensure it meets their requirements.
Calculating the Value of Shares
As soon as you inform your housing provider of your plans to remortgage, they’ll usually request a property valuation in order to ascertain whether there is equity in your home and provide an accurate picture of its market value and share price. This valuation will give an indication of equity levels as well as the price of the share that you wish to purchase.
Example: if your property is valued at £150,000 and you want to buy an additional 25% share, its purchase price would be £150,000 multiplied by 25% = £37,500. Make sure the valuation is completed by an accredited surveyor such as an RICS member for accuracy.
Reasons to Remortgage a Shared Ownership Property
There are several reasons why you might consider remortgaging a shared ownership property:
- Increase Shares: The main reason to remortgage your shared ownership mortgage is to increase the number of shares you own. Increasing shares in a property enable you to gain from any increases in the value of your home. As equity starts to build up, remortgaging becomes easier and a lot more viable.
- Reduce Rent: Increasing shares will also reduce any rent you are paying. If you ever decide to sell your property, the more shares you own will enable you to cash in, especially if the property has increased in value quite considerably! If you do staircase your way to owning 100% of the property outright, you won’t have to pay any rent at all.
- Better Deal: You may also want a shared ownership remortgage to improve on your current mortgage deal. Your current mortgage rate might be higher than you’d like or the initial discounted period is almost over; by refinancing, remortgage could help secure you with lower interest rates and more flexible terms.
- Change of Circumstances: If your financial circumstances have improved since taking out a shared ownership mortgage, refinancing could help increase your share more quickly.
- Market Conditions: Remortgaging can be an ideal financial strategy when interest rates have decreased or your property value has seen significant appreciation, either of which can make refinancing an appealing option.
As with any investment decision, it’s wise to seek advice from an experienced mortgage broker who has access to mortgage lenders who offer shared ownership mortgages to decide which is the right option for you.
Expert Mortgage Broker Advice for Your Shared Ownership Remortgage Journey
An independent mortgage broker can be invaluable when considering a shared ownership remortgage. They will offer tailored advice tailored to your unique circumstances, explain all available options to you, and guide through the application process with you.
Choosing a Mortgage Lender with Expert Broker Assistance
Mortgage brokers offer access to over 14,000 mortgage products from 90+ mortgage lenders, some of which you might not otherwise be aware of or have access to on your own. In addition, they can negotiate more favourable terms and rates for you on your behalf. Whether you’re working with Share to Buy’s mortgage broker partner or another broker, their expertise and guidance can be invaluable in navigating the remortgage process.
Shared Ownership Staircasing or a Simple Remortgage?
Whether you should opt for shared ownership staircasing or a simple remortgage depends on your individual circumstances and goals. If your aim is to increase your shares in the property then staircasing could be your solution to increasing your stake in property ownership and eventually owning it entirely.
However, if you want a better deal on your loan, remortgaging might be best. Seek advice from an expert mortgage broker so that you can decide which option will work for you best.
Fees for a Shared Ownership Remortgage
As with every mortgage, there will be associated costs. Remortgages for shared ownership generally have slightly higher costs involved. This is because most lenders don’t offer mortgages involving shared ownership. As the market isn’t considered mainstream, it is less competitive.
Possible fees involved for shared ownership remortgages:
- Lender arrangement fees (existing or new lenders)
- Valuation fees
- Admin fees (broker and/or lender)
- Legal fees (conveyancing)
- Stamp duty (based on the value of the property/shares or you can pay in stages – if paying in stages, payments commence once shares exceed 80%)
FAQ: Understanding Shared Ownership Remortgage
Can You Remortgage Shared Ownership?
Yes, you can remortgage your shared ownership mortgage. This process enables you to increase your shares in the property, potentially up to 100%, until you own the property outright, a process known as shared ownership staircasing. It's important to note that not all lenders offer shared ownership remortgages, making it advisable to consult with a specialist mortgage broker for guidance.
Can I Take Equity Out of My Shared Ownership Property?
Indeed, staircasing allows you to gain equity with a shared ownership mortgage by increasing your share. While this process boosts your equity, be mindful of additional costs such as valuation fees and legal expenses. Consulting a mortgage advisor is recommended to fully understand the implications before proceeding.
How Does Equity Work with Shared Ownership?
Equity in a shared ownership scheme refers to the percentage of the property you own. As you pay off your mortgage debt or buy additional shares (staircasing), your equity increases. If the property's value rises, so does your equity; conversely, if values decrease, your equity will follow suit. Therefore, it's crucial to consider market fluctuations and how they might affect your equity.
Can You Borrow Against a Shared Ownership Property?
Borrowing with a shared ownership mortgage involves complexities due to its shared nature. Options like further advances for staircasing might be available, depending on your lender's policies. A broker with expertise in shared ownership can provide tailored advice for your borrowing needs.
Is It Difficult to Get a Mortgage with a Shared Ownership?
Securing a mortgage for a shared ownership property can come with unique challenges, primarily due to the partial ownership aspect. Nonetheless, many lenders offer specialised mortgages for shared ownership schemes. Assistance from a specialist mortgage broker can simplify finding a compatible lender.
Are Interest Rates Higher on Shared Ownership Mortgages?
Interest rates on shared ownership mortgages may be slightly higher compared to standard mortgages, reflecting the increased risk perceived by lenders. However, competitive rates can be found through diligent research and negotiation by a broker.
Can You Borrow More on a Shared Ownership Property?
Increasing shared ownership mortgage, particularly for staircasing, is possible. Lenders will evaluate your financial status and property valuation before offering additional funds.
Can You Remortgage a Jointly Owned Shared Ownership Property?
Yes, remortgaging a joint shared ownership mortgage is feasible, provided all co-owners consent to the new mortgage terms. This process requires careful consideration of each owner's financial obligations and equity shares.
Can I Buy a Second Home if I Have a Shared Ownership Property?
Purchasing a second home while partaking in a shared ownership scheme is possible, but subject to lender-specific requirements, including affordability checks. Guidance from a mortgage advisor can help navigate the requirements for owning a second property alongside your shared ownership home.
Conclusion
Start your journey to full property ownership with a shared ownership remortgage. Expert brokers are here to navigate you through securing the best deals and making informed decisions. Seek advice from an expert mortgage broker who can guide you through this process and find you the best available deal. A broker will search the whole market to see if the best interest rate or deal is with the same lender or a new mortgage provider.
Remember, shared ownership’s purpose is to help you take steps toward homeownership. With proper planning and advice from experienced advisors, this opportunity could become your chance to eventually own it all outright.
Shared ownership remortgages provide a flexible and accessible option for anyone beginning or expanding their property journey. Take the first or next step today on your journey!
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