Understanding Staircasing: Purchasing the Remaining Share of Your Shared Ownership Home
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only. You should always seek professional advice from an appropriately qualified adviser.
All contents are based on our understanding of current legislation, which is subject to change, any information provided here is only correct at the time of posting.
The Financial Conduct Authority do not regulate will writing, loans, credit cards or some forms of mortgage, tax advice, offshore investments and estate planning.
Shared ownership is a scheme that helps many people get on the property ladder by buying a portion of a home and paying rent on the remaining share. One of the most appealing aspects of shared ownership is the ability to increase your stake in the property over time, a process known as "staircasing." This blog post will guide you through the process of staircasing, highlighting the benefits and drawbacks to help you make an informed decision.
What is Staircasing?
Staircasing allows you to gradually buy more shares in your shared ownership property, eventually enabling you to own it outright. You typically start by purchasing a share ranging from 25% to 75% of the home's value. Over time, as your financial situation improves, you can buy additional shares in increments, often as small as 10%, until you own 100% of the property.
The Process of Staircasing
1. Check Your Lease Agreement:
Your lease agreement will outline the specifics of staircasing for your property, including the minimum and maximum share increments you can buy and any time restrictions on when you can staircase.
2. Get a Property Valuation:
To begin the staircasing process, you need to get a current market valuation of your home by a qualified surveyor. The housing association usually requires this valuation to determine the cost of the additional shares
3. Arrange Financing:
Evaluate your financial situation to determine how much more of the property you can afford to buy. This might involve saving up for a larger deposit or securing a mortgage. Consult with a mortgage advisor to explore your options and understand the implications on your finances.
4. Notify Your Housing Association:
Inform your housing association of your intention to staircase. They will provide guidance and the necessary paperwork to proceed.
5. Legal and Administrative Steps:
Engage a solicitor to handle the legal aspects of the transaction. The solicitor will manage the conveyancing process, ensuring all legal requirements are met and that the new ownership shares are correctly registered.
6. Completion:
Once the legal work is complete, the transaction will be finalized. Your increased ownership percentage will be recorded, and your rent (if still applicable) will be adjusted accordingly.
Benefits of Staircasing
1. Increased Ownership and Equity:
The primary benefit of staircasing is that you gradually increase your equity in the property. As you buy more shares, you reduce the rent you pay to the housing association.
2. Lower Monthly Costs:
While your mortgage payments might increase as you buy more shares, your rent will decrease proportionally. This can lead to lower overall monthly housing costs if the mortgage payments on the additional shares are less than the rent savings.
3. Full Ownership:
Once you staircase to 100%, you own the property outright. This eliminates rent payments entirely and gives you full control over your home and may make selling the property less complex.
4. Potential Financial Gain:
If property values increase, the value of your shares will also rise. By staircasing early, you can benefit more from any future appreciation in the property’s value.
Drawbacks of Staircasing
1. Costs of Staircasing:
The staircasing process involves several costs, including valuation fees, legal fees, and potential mortgage arrangement fees. These costs can add up and should be considered when deciding whether to staircase.
2. Market Valuation Risks:
The cost of additional shares is based on the current market value of the property. If property prices have increased since your initial purchase, buying more shares can be expensive.
3. Mortgage Considerations:
Increasing your stake might require a larger mortgage. This means higher monthly payments and a longer commitment to repaying the loan. It's crucial to ensure that you can afford these higher payments over the long term.
4. Economic Factors:
Fluctuations in the housing market can affect your decision to staircase. If property values decrease, your investment might not grow as expected, and you could face difficulties if you need to sell the property.
5. Restrictions and Conditions:
Some shared ownership agreements have restrictions on staircasing. For instance, you might be required to staircase in specific increments or within certain time frames, which can limit flexibility. Furthermore, you should ensure your home has adequate buildings insurance as a minimum (some Housing Associations may have arranged this through any service charge payments).
Conclusion
Staircasing is a valuable option for shared ownership homeowners looking to increase their property ownership gradually. It offers the potential for reduced rent payments, increased equity, and full ownership. However, the process comes with costs and risks that need careful consideration. Before embarking on the staircasing journey, it is essential to assess your financial situation, understand the terms of your shared ownership lease, and seek professional advice from a suitably qualified individual. By doing so, you can make an informed decision that aligns with your long-term financial goals and homeownership aspirations.
Remember, homeownership is not just about financial investment but also about securing a place you can truly call your own. Staircasing might be the right step towards that goal.