Staircasing in shared ownership allows you to slowly purchase a home and lower your rent along the way. It’s great for people who can’t afford the full price of a home at the start. However, it can be complicated and end up being expensive over time.
With staircasing you buy a percentage share of a property while paying rent on the remainder. For instance, if you buy a 25% share of a property, you will need to pay rent for the other 75% of the property. You can then purchase subsequent shares until you can pay 100% of the property.
Shared ownership is a government led scheme to buy property that allows you to own a share of your home while paying rent on the remainder. A major reason why shared ownership is popular is that it requires a small deposit and mortgage. This makes it easier and quicker for some to get a mortgage.
How Does Staircasing Work?
The process of staircasing is fairly straightforward and works as follows:
If you own a percentage of your home through shared ownership already you can purchase more of the home over time. To make it simpler, your ownership of the home will start with a set number of shares (e.g. for a 10% ownership you may get 10 shares out of 100, or 20 shares out of 200).
Most shared ownership leases set out a minimum initial holding period where you cannot buy any more shares (usually one to two years but dependent on the lease). Thereafter you are free to purchase more.
Pros Of Staircasing
You Pay Less Rent
Who doesn’t want to save as much money as they can when buying a home?
One of the big benefits of staircasing up is there is less rent to pay after as you own more of the property. If you are financing the increased share with a larger mortgage, your mortgage payments will increase, but this is more beneficial for you compared to paying money for rent that you will never see again.
You Have Better Security
A major drawback of renting a home is getting a notice of eviction whenever the owner wants you to move on. No fault evictions are a big problem in the UK (200,000 people have been served notices in three years). Even though you will have enough time to search for a place depending on the terms of your lease, the disruptions in renting can be inconvenient.
Once you staircase up to own 100% of the home, you will become a full homeowner and won’t have to pay any more rent!
You Get The Opportunity To Change Your Mortgage
A standard mortgage is more beneficial to a homeowner because it is cheaper than a shared ownership mortgage. Fewer lenders provide shared ownership mortgages which means there’s less competition. This makes it more expensive.
Many shared ownership property owners end up changing their mortgage later in time so that they can borrow a higher amount to do staircasing.
If you are able to remortgage to a higher level and buy off the rental portion of your home, it’s likely that more lenders will be willing to lend to you (lenders see the ‘rental’ element of shared ownership as a bit of a risk to them).
If you are able to own 100% of your home and fully staircase, you will be able to secure a standard mortgage like other home buyers.
Of course every person has different circumstances and you need to speak to a professional mortgage advisor to see if you can afford to increase your mortgage.
You Feel Better
It’s a very popular goal in British life to be able to own your own home. The old phrase “a man’s home is his castle” still has meaning to this day.
Regardless of anything else, owning your own home can make a huge difference to your own mental health. Renting has it’s positives, but it can also be stressful at times. It can be good for your wellbeing to own your home, and staircasing can help with this.
It’s Easier To Sell
It can be hard enough to sell a regular property with no complexities. With a shared ownership home a new buyer would have to get comfortable with understanding how exactly the shared ownership model works, and that they would have to pay rent along with paying a mortgage.
If you are able to staircase to 100%, it makes the selling conversation much easier to many buyers.
Cons Of Staircasing
You Remain A Tenant Until You Own 100%
Even though you own part of a home through a mortgage, from a legal point of view you are still considered a tenant until you own 100% of the property. Unfortunately, as a tenant this does mean that you can be evicted for certain reasons such as failing to pay rent or other costs mentioned in your lease. In practice this would be a last resort from a housing association and requires a legal process to be followed.
You Have To Pay Service Charges and Maintenance
As mentioned earlier, you will be in charge of maintenance because owning part of the home makes you a homeowner. This includes repairs needed for your property, such as fixing a leaking pipe.
Service charges are also required for maintaining the building and surrounding area such as the garden, hallway, lighting, etc. You will need to pay a service charge monthly and the cost usually depends on the type of building and communal areas.
Make sure you fully understand the service charges (our useful guide is here) when you first buy the property, because these will surely increase over time and need paying.
Even if you are able to staircase to 100%, you are usually not allowed to turn the shared ownership property into a buy to let rental. However, you may be able to let out a room to a lodger while you live there (you need to verify that this is allowed in the lease).
Staircasing is done at market value
Another essential point that you need to consider is that the price of every future share in the home is calculated at the current market value, and NOT at the value when you first bought the property.
For instance, if the value of your home increases from £500,000 to £600,000 and you want to buy an additional 20% share, you will pay £120,000 for this, not £100,000.
Even though this seems logical, it also means that if the market value of your home rises, your future staircasing payments also increase. Of course if the market value falls you would benefit by paying less for another share, but the housing market in the UK has been increasing over the long term for a very long time!
You Have To Pay Fees Everytime
Staircasing is great – but it does cost money. You need to pay for valuation and admin fees every time you want to staircase up your ownership.
Instead of staircasing frequently, sometimes it can be better to save up your money and staircase to a larger amount all at once. This would mean only one set of fees to pay.
The downside to this is if house prices start rising fast, as then it could actually pay off for you to staircase earlier.
You also need to think about potential stamp duty costs when you staircase, as depending on how you purchased the property at the start you may need pay each time a share is acquired.
You May Not Be Able To Staircase Fully
The goal of a shared ownership lease is to own a home.
However, sometimes this can be difficult. For example, some shared ownership leases only allow you to staircase a set number of times. If you’re not able to staircase after that, you won’t own your home fully.
For some shared ownership homes it is not even possible to staircase to 100%. Some leases are specifically written to only sell a certain amount of a home (e.g. 80%).
Also, an older person’s shared ownership (for people above 55 years) will only allow you to staircase up to 75%.
Summary
Overall, shared ownership staircasing is an excellent process for owning a home. However, it is crucial for you to know every detail before signing a contract. Be sure to speak with your mortgage advisor and solicitor to ensure you make the best decision.
Now that you have the full details of what shared ownership is about, is it a good fit for you?
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