It’s quite normal for house prices to go up as well as down. This is due to changes in market conditions and shared ownership properties are no different in this regard. Property prices will be impacted by various factors. These include changes in the supply and demand for housing in an area. This is often caused by changes to local transport links or employment opportunities. They are also affected by larger influences such as the nation’s economy and the cost of borrowing.
If your shared ownership property increases in value, then you will benefit from some of that increase. In this article, we explain a little more about house price changes and how these impact shared ownership properties.
What happens if my shared ownership property increases in value?
If the value of your shared ownership property increases, then so will the value of your share of the property. You won’t benefit from all of the increase in value. This is because this will be split between you and your third party property owner (usually a housing association) in accordance with the split of ownership.
For example, let’s say you have purchased a 50% share in a property originally valued at £300,000. Your share of the property at the time of purchase was therefore worth £150,000. If the property’s value has subsequently increased by 10%, then the property’s new market value will be £330,000. Your share of ownership still remains at 50%, but this will now be worth £165,000 (50% of £330,000).
In essence, you have benefitted from 50% of the growth in the property’s value, because you own 50% of the property.
Find out more – ‘What happens when you sell a shared ownership property?’
How do I know if my shared ownership property has increased in value?
As with any property, the best way to obtain an accurate estimate of its current market value is to arrange for it to be valued by a local estate agent (which they will usually do for free). They will give you an idea of what they feel your property will sell for based on their knowledge of similar property transactions in the area.
Alternatively, you could pay for a professional property valuation by a qualified surveyor. They will provide a more detailed report on the property and usually provide some evidence for the valuation figure they provide. If your home was purchased via the shared ownership scheme, then you can get a professional valuation via shared ownership valuation. This is where a Chartered Surveyor visits and assesses your property to get an estimate of what it is worth. They look at the features and location of the property, along with similar properties in the area.
Unless you are planning on selling your property or staircasing up your share of ownership, it probably isn’t worth going to the expense and trouble of obtaining a formal valuation of your property. You can, however, get a reasonable idea of its current value by keeping an eye on what similar properties have sold for in your area by using Rightmove’s sold house price information.
How does an increase in value affect staircasing?
You will need to get your house valued if you are planning to sell or staircase your shared ownership property. Staircasing is when you purchase further shares in your property. In turn, you increase the proportion of it that you own and therefore reduce the proportion owned by the housing association.
Staircasing generally has the effect of reducing the amount of rent you pay. However, this is normally offset by the increased cost of mortgage repayments, assuming you have funded the cost of the additional property share by increasing your borrowing.
If your property (and therefore your share of it) has increased in value, then this can have some implications when it comes to staircasing. Purchasing further shares will become a little more expensive. This is because the price of the additional share will be based on the new valuation price of the property.
If your property is valued higher than you were expecting, you may need to take out a larger shared ownership mortgage. Alternatively, you may have to purchase a smaller share than you were planning.
Find out more – ‘Shared ownership – how does staircasing work?’
What if my shared ownership property decreases in value?
Whilst most residential properties have generally increased in value over time, they may also occasionally decrease in value. This was seen in many areas during the economic slump which followed the financial crash of 2008.
Some properties have also lost value as a result of major developments such as the new HS2 rail link, particularly if the proposed route passes close by the property. In addition, if a property hasn’t been well maintained or has suffered damage through flooding or subsidence, then this is also likely to adversely affect its market value.
If your property has suffered a fall in value, then you may find yourself in a negative equity situation. This is when the value of your property (or your share of it) is worth less than the amount you currently owe on your mortgage. If you should find yourself in this position, then it may make sense to wait it out until house prices recover before you look to sell or staircase.
How can I protect myself from negative equity?
You may be able to recover some of your property’s lost value. You could undertake some home improvements and/or a property extension. However remember, you will need the cash to fund this. Your mortgage lender will normally be unwilling to add this to your mortgage until the work is complete and the property revalued.
Ensure that you speak to a local estate agent before undertaking this type of work. Make sure it will actually add value. You must also obtain the agreement of your Housing Association before doing any work. They will generally need to approve any proposed property alterations before you start. You may be restricted with any changes that change the structure and footprint of your property.
So, how else can you protect yourself from getting into negative equity? You could put down as large a deposit as you can when you purchase a property. Not only will this mean you won’t need to borrow as much money, but it also means that if house values go down for any reason then you will have a larger buffer before you hit negative equity.
You might also consider overpaying your mortgage if you can afford it. You do this by paying more than the minimum required mortgage repayment each month. This will have the effect of reducing your borrowing more quickly and ultimately paying off your mortgage borrowing sooner. Not all mortgage lenders allow you to overpay your mortgage, however – particularly during any fixed-rate period. It’s important to check with your lender before doing this.
Find out more – ‘How much can I overpay on my mortgage?’
How can Mortgage Light help?
Are you a shared ownership property owner and curious about the value of your property? Are you thinking of staircasing this year? Or perhaps you are thinking of utilising the scheme in order to get onto the property ladder.
Wherever you are in your journey, let our Mortgage Light shared ownership specialists help you. Contact us via our website or give us a call on 01908 597655.
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