Should I repay my equity share?

Q I am 42 years old and in 1991 I bought an ?80,000 house with an endowment mortgage of ?33,000 over 25 years and a ?40,000 equity share from my local government employer.

I have only recently been able to make significant repayments of the debt and have reduced the mortgage debt to ?23,000. The debt could possibly be repaid completely in two or three years time. I have an income of ?27,000, we receive two child benefit payments and my wife gets Disability Living Allowance, which adds up to a total of about ?500 month.

The equity share can be bought in chunks of 5%. I pay rent of ?130 a month for the equity share. The share is now double what it would have been when provided for me.

Our three-bed terraced home is probably now valued at ?160,000. Ideally we would move to a larger home but the mortgage of up to ?120,000+ looks unsustainable.

My strategy is to carry on repaying the mortgage first and then to save to repay the equity share element. If house prices fall then it will be much easier for me to buy out the equity share, the fact that they have risen so much has got me in a trap as the scheme is tied to my employment (fortunately I am quite happy where I work but it would always be nice to have the option of working elsewhere).

I would be grateful for any financial or other advice that you would be able to give me.

TH

A It sounds as though you are part of a Share Ownership scheme, where you buy a proportion of a property with an ordinary mortgage and pay a subsidised rent on the remainder. As the value of the property grows, so too does the proportion which you need to buy back in order to own your home outright.

Your situation poses a number of questions. Firstly, how is your endowment mortgage performing? You may have received a letter from your provider giving an indication of whether it is on target to pay back the loan in full. Since you bought the house in 1991 the endowment plan probably has more than ten years still to run, so you won't be able to use the maturing plan yet to pay off the mortgage element in full.

Secondly, does your local government employer manage the scheme, or is it run by a housing association? If it is connected to your work, you may be able to obtain specialist advice from your union representative on the best way forward. Alternatively, your union may be able to recommend financial advisers who are skilled in dealing with Shared Ownership schemes.

You are quite right that house prices have risen very sharply and many economists believe that they are unlikely to continue to do so and may start to fall this year. You would be well advised to take some specialist advice on the scheme that you belong to and the performance of your endowment mortgage before you decide to move.

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