If you have bought a share of your home using the shared ownership scheme, the process of ‘staircasing’ enables you to gradually own a greater proportion of the property by purchasing additional shares. The more of the property you own, the less rent you will pay to your Housing Association. If you eventually staircase up to 100% ownership, you will own the property outright. You will no longer need to pay any further rent.
Generally, you can’t begin staircasing until you have owned your share of the property for an agreed fixed period of time. This initial restricted period will be detailed in your lease. It’s also important to check the terms of your lease. Getting up to 100% ownership is not always possible. Some housing providers limit the share of the property you can staircase up to.
How do you staircase in shared ownership?
If you want to begin staircasing, you first need to contact your housing provider. You need to give notice that you intend to staircase. Your housing association will arrange for an independent surveyor to value your home, or give you a list of approved surveyors for you to choose from. You will be responsible for paying for the cost of this valuation report.
You need to have your home valued each time you staircase. This is because the price of any additional shares will be based on the current market value of the property. Let’s say for example that you purchased 25% of your home, and pay rent on the other 75%. You wish to buy another 25% share, enabling you to own 50% of your home. If the new survey values your home at £200,000, for instance, then the additional 25% share of the property will cost you £50,000 to purchase.
You will also need to appoint and pay for a solicitor to act on your behalf during the process purchase. They will make the changes to your existing lease, and help to ensure that the legal side of the process is properly completed and goes through smoothly. Once you receive a copy of the surveyor’s valuation report, you’ll be given the opportunity to either proceed with the share purchase or leave things as they are. You have three months to take up the option. After that, your valuation expires leaving you to start the process again.
Paying for the additional shares in your property will usually involve extending and/or remortgaging your existing mortgage facility. To help you arrange this, you should speak to a mortgage advisor and broker who specialises in shared ownership mortgages, such as us here at Mortgage Light. We will be able to guide you through the process. We will also review the funding options available to you, ensuring you get the most suitable mortgage product for your circumstances.
Cost of staircasing in shared ownership
There are other fees involved in staircasing, additional to the price of the shares. You can typically expect to pay around £1000 – £2000 in additional expenses. This cost will vary depending on where you live, the value of your home, the size of the share you are purchasing and cash backs from lenders.
You will need to cover the cost of the valuation report, prepared by a qualified RICS surveyor, in order to determine the current market value of your property. There will also be legal expenses due to your solicitor for the work they do for you.
You may also incur some mortgage fees for increasing or remortgaging your share of the property to help raise the additional funds needed to pay for the staircasing. The cost of this will depend on the deal you obtain and your circumstances.
Stamp duty may also be payable. When you first purchase a shared ownership property, you have a choice about how you pay any necessary stamp duty. You can make a one-off payment based on the total market value of the property. Alternatively, you can choose to pay what is owed for the initial share you buy. You’ll then need to pay again when you own more than an 80% share of the property. If you choose the latter, this cost should also be factored into the total cost of staircasing if applicable.
It makes sense to buy as big of a share as possible each time you staircase, due to the admin fees. Housing Association lease terms will vary but usually, you can staircase up to three times to take you up to 100%.
If you purchase additional shares, you may find that you are struggling with the mortgage payments. In this case, you may be able to sell your shares back to the Housing Association. This is known as downward staircasing. Again, check the terms of your lease to see if this option is available to you.
Should I staircase in shared ownership?
You don’t have to staircase with your shared ownership property. You could just continue with the share you purchased, paying any mortgage you have and the rent on the remainder. It is still more secure than renting, and you are still building up equity in a property. In fact, back in 2018, research showed that only 10% of those in shared ownership chose to staircase because they felt that the ‘hassle’ and financial costs of doing so outweighed the benefits.
So, what are the benefits? The obvious benefit is that by purchasing more shares, you put yourself on track to staircase up to 100% ownership. This gives you more control and security as a homeowner. You’ll have the option to switch from a shared ownership mortgage to a wide range of more standard products. These tend to be cheaper and give a greater variety of deals to choose from.
100% ownership also gives you the freedom to sell your house on the open market. If you own less than 100% of the property, the Housing Association generally holds the right to find a buyer for your share of the property first. Any purchaser of your share would need to be eligible for the shared ownership scheme.
Additionally, the more you staircase, the less rent you will pay each month to your Housing Association. This could make sense, even if you don’t intend on staircasing to 100%, or are restricted in doing so. Although the rent you pay with shared ownership is generally less than the rate charged on the open market, it often makes more financial sense, if you can afford it, to be putting your money towards paying off your mortgage.
You could reach a point where you have fully repaid your mortgage and own 80% of your home. You may only be paying rent on the remaining 20% share of the property at a reduced market rate. This could be particularly attractive as you enter retirement and possibly a restricted income.
However, be mindful that if you don’t intend on staircasing to 100% ownership, you may not want to purchase too much in shares. Let’s say for example that you staircase to 80% ownership. If you then decide to sell the property, you or your Housing Association may struggle to find a buyer willing to purchase this large of a share.
At Mortgage Light, we have helped many people staircase up to 100% property ownership through the shared ownership scheme. We have specialists ready to help you purchase more shares if this is what you would like to do.
Give us a call and let’s chat it through, on 01908 597655 or contact us via our website.