Shared Ownership Re-Mortgage
Shared Ownership Re-Mortgage: What is it and why you might want to consider one.
You have bought your Shared Ownership property and life goes on, then some time later, a letter arrives from your mortgage lender announcing that you are nearing the end of your fixed/tracker/discount mortgage scheme and that you will be reverting to their standard variable rate.
This is generally bad news as a lender’s standard variable rate will usually be somewhat higher than the one that you have been paying and, if interest rates increase in the future, could rise further.
Your options are to either stay with your present lender on the standard variable rate or to consider a re-mortgage. A re-mortgage means changing your mortgage lender in order to have the choice of another mortgage scheme with a lower interest rate.
How might this work? Well, several things may have changed in your favour since your original application:
- Your property may have increased in value
- Your income may have increased
- The balance on your current mortgage should have reduced
- You have demonstrated that you can maintain repayments on a mortgage so your credit score with a mortgage lender will have improved
- If you purchased a brand new property and two years have elapsed, then more lenders will be willing to consider lending to you.
The best way to demonstrate how this could work in practice is a worked example as follows:
Details at time of purchase:
- Full property price: £300,000
- Share 50%: £150,000
- Deposit 5%: £7,500
- Mortgage: £142,500
At the end of the initial mortgage product term your mortgage balance has reduced to £140,000 and, assuming the standard variable rate is 5%, making your new monthly repayment £830.
Details at time of re-mortgage:
- Property value now: £360,000
- Share 50%: £180,000
- Mortgage balance: £140,000
- Equity/deposit is: £180,000 – £140,000 = £40,000 which is a deposit of 22%
- A five year fixed rate for £140,000 with a 22% deposit is available for around 2.4%
- Monthly repayment over 23 years is approx. £659 per month
- Saving over a five year term is (£830 – £659) X 60 = £10,260
There will inevitably be some costs involved; your current lender may charge a closing fee and there will generally be some legal fees incurred.
Some mortgage lenders do offer “free legals” for re-mortgages, but as Shared Ownership is more involved there will probably be a surcharge to pay. However, you would be given a quote on these before work would be undertaken. Quite a few lenders will offer a “cash back” of a few hundred pounds at completion if you prefer to use your own solicitor (who may be cheaper).
As a rule of thumb, total costs could be in the region of £1,000.
When you’re ready to remortgage, we’d recommed speaking to an Independent Financial Advisor. Why not check out Share to Buy’s Mortgage Broker Panel.
– Stephen Dwelley, Share to Buy
Find out how Share to Buy can help you remortgage your Shared Ownership home today! Or, if you’re looking to buy your first home, why not check out our mortgage comparison tool and mortgage calculator to see what options are available to you.