As a shared ownership homeowner, you may be considering increasing your share or seeking a better deal on your loan. This guide will help you navigate the complexities of shared ownership remortgages.
What is a Shared Ownership Remortgage?
Before embarking on the journey, it’s vital to understand how to remortgage. 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 remortgage allows you to increase your shares in the property. 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, though it’s essential that the terms and conditions with your housing provider 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.
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 a shared ownership property 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 get a better 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 in order to decide which is the right option for you.
Case Study: Sarah's Shared Ownership Remortgage Journey
She reached out to both her current lender and a specialist mortgage broker for advice, and after conducting a property valuation she secured a larger loan and increased her share to 75%. Remortgaging also enabled her to access lower interest rates that reduced monthly payments significantly.
Sarah's story illustrates how shared ownership remortgaging can help individuals increase their property shares and potentially secure better mortgage deals.
How a Mortgage Broker Can Assist with Shared Ownership Remortgage
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.
Financial advisers offer access to an expansive array of mortgage products and 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%)
Frequently Asked Questions
Can You Remortgage Shared Ownership?
Yes, you can remortgage a shared ownership property. This process allows you to increase your shares in the property, potentially up to 100%, until you own the property outright. This process is known as shared ownership staircasing. It's important to note that not all lenders offer shared ownership remortgages, so it's advisable to seek advice from a specialist mortgage broker.
Can I Take Equity Out of My Shared Ownership Property?
Yes, staircasing can help you gain equity out of a shared ownership property by increasing your share. This increases equity; however, additional costs such as valuation fees and legal costs may arise; it would be wise to consult a mortgage advisor in order to fully understand all implications before undertaking this action.
How Does Equity Work with Shared Ownership?
Equity refers to your percentage ownership in a shared ownership scheme. When paying off mortgage debt, your equity in the property increases, as does it when buying additional shares (staircasing). Should property values increase as well, your equity value would also rise accordingly; on the other hand, if values decrease so will yours - therefore it is essential that market fluctuations don't alter your equity's worth too significantly.
Shared ownership remortgages offer a path towards increasing your stake in a property and eventually full ownership, though it requires careful thought and planning. 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 lender.
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!