Q I own a share in a shared-ownership flat but since buying it I have moved to a much better paid job. As a result, I have managed to save £40,000 but I am not sure what is the best way to invest it. The options open to me seem to be to: repay 70% of my mortgage; buy a bigger share in my flat (which has gone up in value); or buy a property to let. It is likely that I will be looking to move to a bigger place in the next 14 to 24 months. LS
A As you are looking to move in the next year or two, another option would be to hang on to the £40,000 to put down as a deposit on your next property. You typically need at least 10% of the price of a property to put down as a cash deposit when you exchange contracts on a the purchase of a property so you should at least set aside part of your savings for that purpose. Paying off some of your mortgage is also an option as the rate you are paying on your mortgage is likely to be higher than the interest you are earning on your £40,000.
“Staircasing”, that is buying a bigger share in your current flat, would mean that you get to keep more of the sale proceeds when you eventually sell it. If it would mean that you could own your home outright – by increasing your share to 100% - you might also want to consider increasing your mortgage as well as using the £40,000. As your earnings have gone up and the flat has risen in value, this might be quite straightforward.
The advantage of owning your flat outright is that you are able to sell it yourself – although if the housing association wants to buy it back, you have to let it. This is known as first refusal and the housing association has this right for 21 years after you fully own the home. If you don’t own your home outright, when you come to sell, it’s up to the housing association to find a buyer for it, typically within eight weeks of it being on sale. Demand for second-hand shared ownership homes can be low and potential buyers are limited to people who qualify for shared-ownership schemes whereas if you own the whole home, you can sell it to anyone you like and the process is likely to be quicker.
Buy-to-let is an option only if you can find a suitable property to buy for £160,000, which assumes you put down a deposit of £40,000, took out a typical buy-to-let mortgage of 75% of the value of the property and could charge rent of 125% of the monthly mortgage repayments. But even if the figures work out, buy-to-let is a sensible option only if you are happy to take on the responsibilities of becoming a landlord and running your own rental business.
