Shared ownership remortgage

Navigating the intricacies of remortgaging can be daunting under normal circumstances, but with shared ownership, the process can be even more complex given the involvement of housing associations and the unique rules that apply. In this guide, we will explore the concept of shared ownership remortgaging, discussing the why, when, and how of this important financial decision, to provide you with the knowledge you need to make informed decisions about your shared ownership property.

What is a shared ownership remortgage?

Shared ownership is a scheme commonly used in the UK that allows people to buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which is usually owned by a housing association.

When we talk about a shared ownership remortgage, it refers to the process of switching your existing mortgage on a shared ownership property to a new mortgage deal, either with the same lender or a new one. This could be done for various reasons, such as to get a better interest rate, change the terms of the loan, or borrow more money against the property.

In some cases, shared ownership remortgage can also refer to ‘staircasing’, which is the process of buying more shares in your shared ownership property. This can be done through remortgaging if you’re borrowing more money to cover the cost of the additional shares. The ultimate aim of staircasing is to own 100% of the property.

It’s important to note that remortgaging a shared ownership property can be a bit more complex than a standard property, as it may involve not only the lender but also the housing association. You’d also have to consider valuation fees, legal costs, and potentially a higher rate if you’re borrowing more. As always, getting professional financial advice is recommended when considering such a step.

How does a shared ownership remortgage work?

Shared ownership remortgaging works somewhat similarly to a standard remortgage, but with a few additional steps and considerations due to the nature of shared ownership. Here’s how it generally works in the UK:

Decide Your Purpose: Your first step is to decide why you want to remortgage. This could be to get a better interest rate, reduce your monthly payments, change your mortgage type, or staircase (i.e., buy more shares of your property).

Property Valuation: If you’re remortgaging to staircase, your property will need to be valued to determine the cost of the additional shares you want to buy. The housing association typically arranges this valuation, and you will likely need to cover the cost.

Lender Search: Next, you will need to find a lender. You may choose to stay with your existing lender or switch to a new one. Keep in mind that not all lenders offer mortgages for shared ownership properties, so your choices may be somewhat limited. You might consider using a mortgage broker to help you find the best deal.

Application: Once you’ve chosen a lender, you’ll apply for the remortgage, providing all necessary documentation and information. The lender will conduct an affordability assessment and a credit check.

Mortgage Offer: If your application is successful, the lender will provide a mortgage offer. At this point, you can accept the offer and proceed to the next steps.
Legal Work: You’ll need a solicitor to handle the legal side of the remortgage. They will liaise with your lender and the housing association, handle the transfer of funds, and update the Land Registry.

Staircasing: If you’re remortgaging to buy more shares of your property, this is when the staircasing process would be completed. Your solicitor will liaise with the housing association, and you’ll pay for the additional shares. Your rent to the housing association will decrease accordingly.

Completion: Once all the legal work is done and the funds have been transferred, the remortgage is complete. You’ll start making payments on your new mortgage as agreed with your lender.

Calculating the value of shares

The value of the shares in a shared ownership property is typically calculated based on the current market value of the property. This value is determined by a valuation carried out by a qualified surveyor.

Let’s say, for instance, that a recent valuation determined the shared ownership property’s current market value to be £200,000. If you own a 50% share of this property, the value of your share would be £100,000.

If you wanted to buy an additional 25% share in the property, you would typically pay 25% of the current market value, which in this case would be £50,000.

Remember that the value of property can go up or down over time due to factors such as changes in the property market, improvements or alterations to the property, and changes in the local area. So, the value of your shares can also increase or decrease over time.

If you’re considering buying more shares in your shared ownership property (known as staircasing), you’ll need to get a new valuation to determine the current market value. The cost of the additional shares will be based on this valuation, not the price you originally paid. 

Shared ownership staircasing

Shared ownership staircasing is the process by which you buy more shares in your shared ownership property. When you initially buy a shared ownership property, you buy a certain percentage (usually between 25% and 75%) and pay rent on the rest, which is owned by a housing association or similar organisation.

Staircasing allows you to increase the percentage of the property that you own, potentially up to 100%. The main advantage of staircasing is that it reduces the amount of rent you have to pay to the housing association, because you’re increasing the part of the property you own and reducing the part that you rent. If you staircase to 100%, you become the outright owner and no longer have to pay any rent.

Here’s a general overview of how staircasing works:

Property Valuation: First, the property needs to be valued by a professional surveyor. This is because the cost of the additional shares will be based on the current market value of the property, not the price you originally paid.

Cost of Additional Shares: Once the current market value is determined, the cost of the additional shares can be calculated. For example, if your property is valued at £200,000 and you want to buy an extra 25% share, you would pay £50,000.

Affordability Check: Before you can buy more shares, you’ll need to prove that you can afford the additional mortgage repayments or have the cash to pay for the shares upfront.

Legal Work: If you’re buying more shares, a solicitor will need to handle the legal work. This will include liaising with the housing association and possibly your mortgage lender, as well as updating the Land Registry.

Mortgage or Cash: You can buy the additional shares by increasing your mortgage or paying cash. If you’re increasing your mortgage, your lender will need to agree to this. You may need to remortgage to do this, either with your current lender or a new one.

Reduced Rent: Once you’ve bought the additional shares, your rent will be recalculated and reduced accordingly. If you own 100% of the shares, you no longer have to pay any rent.

The benefits and reasons to remortgage

There are several benefits and reasons why you might choose to remortgage a shared ownership property. These include:

Securing a Better Rate: One of the most common reasons for remortgaging is to secure a more favourable interest rate. If mortgage rates have fallen since you took out your original mortgage, or if your credit rating has improved, you may be able to get a better deal.

Additional Borrowing: Some people remortgage to release equity from their home, perhaps to fund home improvements, consolidate debts, or assist with other financial needs.

Staircasing: If you want to buy more shares in your property—a process known as staircasing—you may need to remortgage in order to increase your borrowing. By doing so, you reduce the amount of rent you pay to the housing association, and increase your personal stake in the property.

Changing Mortgage Type: You might choose to remortgage if you want to change the type of mortgage you have. For instance, you might want to switch from an interest-only mortgage to a repayment mortgage.

Releasing Equity: If your property has increased in value, you might remortgage to release some of the equity you’ve built up. This could give you a cash lump sum to spend on home improvements, consolidate other debts, or for other purposes.

End of Introductory Deal: If your initial fixed rate, discount, or tracker deal period is coming to an end, you might choose to remortgage to avoid being moved onto your lender’s standard variable rate (SVR), which could be higher.

Change in Circumstances: If your circumstances have changed—for instance, if your income has increased significantly—you might choose to remortgage to a deal that suits your new situation better.

The potential downsides of remortgaging a shared ownership property

Remortgaging a shared ownership property comes with potential downsides, which can vary depending on individual circumstances. Here are some of the key points:

Costs: Remortgaging can involve several costs, including valuation fees, legal fees, and potentially early repayment charges if you’re exiting your current mortgage deal early. These costs can add up and may outweigh the potential benefits.

Affordability: If you’re remortgaging to staircase or borrow more, you’ll need to ensure you can afford the higher repayments. Overstretching your budget can lead to financial difficulties.
Availability of Products: Not all lenders offer shared ownership mortgages, so you might have fewer options when remortgaging. This could make it harder to find a competitive deal.

Complex Process: Remortgaging a shared ownership property can be a more complex process than a standard remortgage, due to the involvement of the housing association and the need to value the property if staircasing.

Property Value Risk: If the property’s value has fallen since your original mortgage, you might find yourself in negative equity, where you owe more than the property is worth. This could make it difficult to remortgage.

Credit Score Impact: If you have a poor credit score, this might affect your ability to get a good remortgage deal, or to remortgage at all.

Are there specific eligibility criteria?

Shared ownership remortgages have similar eligibility criteria to those of a regular mortgage, but with a few additional requirements due to the shared nature of the property. These criteria can vary among lenders, but generally include the following:

Affordability: The lender will conduct an affordability assessment to ensure that you can afford the remortgage repayments. They’ll consider your income, outgoings, and any existing debts.
Creditworthiness: Your credit history will also be considered. A good credit score can help you secure a better interest rate, while a poor credit score could limit your options or make remortgaging more difficult.

Employment Status: Many lenders require that you have a stable employment history. Some may also have minimum income requirements.

Property Value: The current value of your property plays a significant role, as it influences the loan-to-value ratio (LTV). If the property value has decreased, you might find yourself in a negative equity situation, which could make remortgaging more difficult.

Remaining Share: For shared ownership properties, the housing association typically owns the remaining share of the property. For a remortgage to be possible, some lenders may have restrictions on how much of the property the housing association can own.

Lease Length: There is usually a requirement that a certain number of years remain on the property’s lease. This can vary, but 80 years is often cited as the minimum.

Staircasing Rules: If you’re remortgaging to buy more shares of your property (known as staircasing), the housing association may have its own rules and restrictions to consider.

Keep in mind that these are general criteria that can vary from one lender to another. It’s always a good idea to get professional advice tailored to your individual circumstances.

What fees or additional costs might be involved when remortgaging a shared ownership property?

When remortgaging a shared ownership property, several fees or additional costs could be involved. These include:

Early Repayment Charge: If you are still within the introductory deal period of your current mortgage (for instance, the fixed rate period), you may have to pay an early repayment charge to your existing lender. This could be a significant amount, depending on the terms of your mortgage.

Exit Fee: Some lenders charge an exit or administration fee when you repay your mortgage, even if you are not within an introductory deal period.

Valuation Fee: If you are staircasing (buying more shares in your property), your property will need to be valued to determine the cost of the additional shares. This is typically arranged by the housing association, and you will have to cover the cost.

Legal Fees: You’ll need a solicitor or conveyancer to handle the legal work involved in the remortgage. Their fees can vary widely, so it’s worth shopping around.

Arrangement Fee: Your new lender may charge a fee for setting up the mortgage. This can often be added to the mortgage amount, but remember that you’ll pay interest on it if you do this.

Broker Fee: If you use a mortgage broker to find your new mortgage, they may charge a fee for their service. Some brokers charge a flat fee, others a percentage of the mortgage amount, and some are fee-free but take a commission from the lender.

Stamp Duty: Depending on the circumstances and current regulations (which can change), you may have to pay Stamp Duty Land Tax (SDLT) when you buy additional shares of your property. It’s worth getting advice on this, as the rules around SDLT can be complex.

Remember that these costs can add up, and it’s important to factor them in when deciding whether to remortgage. In some cases, the costs could outweigh the potential benefits of remortgaging. It’s always a good idea to seek professional financial advice before proceeding.

What are the differences between remortgaging a shared ownership property and a traditional property?

Remortgaging a shared ownership property and a traditional property share many similarities; however, there are several key differences due to the nature of shared ownership. Here’s a brief comparison:

Shared Ownership Remortgage:

Housing Association Involvement: The housing association must be involved in the process, as they own a portion of the property. They may have specific rules or restrictions around remortgaging and staircasing.

Limited Lender Options: Not all lenders offer shared ownership mortgages, so you might have fewer options when remortgaging. Some lenders also have specific criteria around how much of the property can be owned by the housing association.

Rent Adjustments: If you’re remortgaging to staircase, the rent you pay to the housing association will be adjusted based on the new ownership percentage.

Traditional Property Remortgage:

Straightforward Ownership: Since you own 100% of the property, the remortgage process can be more straightforward. You won’t need to consider staircasing or adjust rent payments.

More Lender Options: As traditional mortgages are more common, you’ll likely have a broader range of lenders to choose from when remortgaging.

Property Equity: In a traditional remortgage, you can potentially release equity from your property, something which may not be possible with a shared ownership property until you own a larger percentage or the property outright.

Remember, whether you’re remortgaging a shared ownership property or a traditional property, it’s crucial to consider the potential costs and benefits and to seek professional advice before proceeding.

How does shared ownership remortgaging affect stamp duty land tax (SDLT)?

Stamp Duty Land Tax (SDLT) is a tax paid on the purchase of properties in England and Northern Ireland. When it comes to shared ownership properties and remortgaging, the situation can be a little complex. Here are some key points:

Initial Purchase: When you first purchase a shared ownership property, you have two options for how you pay SDLT. You can choose to pay the tax only on the share you initially purchase (and pay the rest later if you staircase to a majority or the whole property), or you can make a “market value election” and pay SDLT on the total value of the property. The latter option might mean paying more upfront, but it would avoid any SDLT charges later if you staircase.

Staircasing: If you decide to buy additional shares in your property (staircasing), you might have to pay more SDLT. This depends on how much you’re paying for the new shares and whether you’ve already paid SDLT on the full value of the property.

• • If you didn’t make a market value election when you first bought the property, you won’t pay SDLT on the purchase of additional shares unless the total you’ve paid for all the shares you’ve bought exceeds the SDLT threshold.

• • If you made a market value election when you first bought the property, you won’t pay any more SDLT when you staircase, regardless of how much you’re paying for the new shares.

Generally, remortgaging doesn’t affect SDLT because SDLT is a tax on property transactions, not loans or mortgages. However, if you’re increasing your mortgage to buy more shares in your property (i.e., staircasing), then SDLT might be due depending on the considerations mentioned above.

Are there any restrictions on which lenders will allow a remortgage on a shared ownership property?

Yes, there can be restrictions on which lenders will allow a remortgage on a shared ownership property. This is primarily because shared ownership mortgages are a specialist product that not all lenders offer. There are several factors that can influence a lender’s willingness to offer a remortgage on a shared ownership property:

Remaining Share: Some lenders may have restrictions on how much of the property the housing association can own. They may require that you own a certain percentage of the property before they’ll consider a remortgage.

Affordability: Just like with a regular mortgage, lenders will assess your income, outgoings, and existing debts to ensure that you can afford the remortgage repayments.

Credit History: Your credit history will also play a role. A good credit score can make it easier to secure a remortgage, while a poor credit score could limit your options.

Employment Status: Many lenders require a stable employment history and a certain level of income. If you’re self-employed or have irregular income, you might find it more difficult to secure a remortgage.

Property Value: The current value of your property will be a significant factor, as this will influence the loan-to-value ratio (LTV). If the value of the property has fallen, you might find it more challenging to secure a remortgage.

Despite these restrictions, there are still numerous lenders in the UK that offer shared ownership remortgages. It can be helpful to work with a mortgage broker who specialises in shared ownership and has an understanding of the market and the lenders that operate within it.

What kind of advice should I seek before deciding to remortgage a shared ownership property?

Before deciding to remortgage a shared ownership property, it’s advisable to seek advice from various professionals to ensure that you’re making the best decision for your situation. Here’s who you might want to consult:

Mortgage Broker: A mortgage broker can help you understand the different mortgage products available, guide you through the application process, and advise you on the best options based on your financial circumstances. A broker who specialises in shared ownership can be particularly helpful.

Solicitor or Conveyancer: Legal advice is crucial when remortgaging, as there are legal aspects to the process that need to be handled correctly. A solicitor or conveyancer will help ensure everything is done properly.

Accountant: If you’re self-employed or have complex income arrangements, you may want to consult an accountant. They can provide advice on your financial documentation and how to present your financial situation to a potential lender.

Providers: Don’t forget to consult with your providers. They may have specific requirements or restrictions when it comes to remortgaging, and they’ll need to be involved in the process if you’re planning to buy more shares in your property (staircasing).

Before seeking advice, it can be useful to have a clear idea of your financial situation and what you hope to achieve by remortgaging, whether it’s securing a better interest rate, reducing your monthly repayments, or buying more shares in your property. This will help the professionals you consult provide the most relevant and useful advice.

Shared ownership remortgaging is a complex but potentially beneficial process. Whether your goal is to secure a better mortgage rate, reduce your monthly payments, or increase your stake in your property through staircasing, remortgaging can provide the financial flexibility you need to achieve your goals. However, it’s essential to navigate this process with a clear understanding of the unique aspects of shared ownership, the potential benefits and downsides, and the financial implications involved.

Remember, professional advice from mortgage advisors, financial advisors, and legal experts is invaluable when considering such significant financial decisions. The more knowledge you have, the better equipped you’ll be to make decisions that are right for your circumstances and future financial health. Shared ownership remortgaging may not be the right path for everyone, but for some, it can be a powerful tool in the journey towards full homeownership and financial stability.