Posted Oct 8, 2023
In this article, we will explore shared ownership staircasing, providing you with information to help make your journey smoother and more predictable. We've tackled common questions, and outlined the steps to take when dealing with staircase processes.
What is Shared Ownership Staircasing?
Staircasing is part of the shared ownership scheme. It allows you to increase your share of ownership in the property over time.
The benefit of staircasing is:
- While you gradually decrease the rental portion, you will increase the value of the asset you own as house prices increase.
- With each additional staircase, your equity could potentially grow.
As with any financial decision, you should always seek professional advice and understand the terms and commitments of shared ownership thoroughly before making a decision.
What is the process to staircase?
Staircasing refers to the process of buying additional shares of your shared ownership property. Once you have bought your initial share, you can use staircasing to buy more shares, often in increments of 10%. You'll pay a price based on the current market value of the property, assessed by an independent surveyor.
This process allows you the flexibility to buy more shares when you can afford to, potentially up to 100% ownership. The greater the share you own, the less rent you have to pay to the housing association.
The staircasing journey can seem daunting, especially if you are new to shared ownership. However, the process can be broken down into manageable steps.
- Evaluate Your Budget - Before starting, ensure you’ve calculated your budget accurately. This includes the cost to buy the extra share, solicitor’s fees, and valuation costs.
- Get a Property Valuation - An independent surveyor must value your property. The cost of the new share will be dependent on this valuation.
- Inform Your Housing Association - Once you have the valuation, inform your housing association of your intent to staircase. They will provide the necessary paperwork and guide you further.
- Engage Legal Support - This is not a process you should take lightly. Getting legal support saves time and complications.
- Secure Your Finances - Discuss your intentions with your mortgage lender or seek an alternative source of finance, such as loans or savings.
- Purchase Additional Shares - After finalizing your finances, proceed to purchase additional shares to increase your ownership stake.
At Guinness Homes we have a dedicated staircasing team that can support you during if you decide to staircase on an existing property.
Considerations Before You Buy More Shares
There are several factors you need to consider before making the decision to buy more shares:
Can you afford the ongoing costs associated maintenance, insurance costs, and mortgage payments?
Before you can begin staircasing, you need to judge your financial status. This means considering your equity – the value of your ownership in your home. Equity can be a major source of funding for your staircasing process. You also need to take into account your income, expenses, and other financial commitments to determine your affordability.
Note that your valuation only lasts three months, you should aim to complete your purchase within this period.
Some leases may restrict how often or how much of the property you can buy at a time.
Despite the benefits, staircasing can present some challenges. Key among them is the overall cost involved. This includes valuation costs, solicitor fees, and possibly higher mortgage repayments. To overcome this, ensure you have a clear understanding of all the costs involved and plan your budget accordingly. Another challenge involves time; staircasing can be a length process. Ensuring you have all necessary documents and information at hand can help speed up the process.
Potential Staircasing Restrictions and Limitations
When planning to buy more shares, consider the following:
- Check for any constraints such as limitations on frequency and the minimum percentage to buy each time.
- Some housing associations may charge for administrative costs.
- The 'local connection criterion' can limit selling options in certain rural areas.
- It's crucial to check the terms of your lease agreement for any restrictions or staircasing stipulations.
- Professional legal advice is recommended to understand lease terms and navigate the staircasing process.
- Estimating the Cost of a New Mortgage and Additional Shares
Staircasing implies purchasing extra shares in your property, which may imply securing an increased mortgage. Remember, the cost of the added shares will mirror your property's current market value, not its value when you initially bought into shared ownership.
You'll need to consider how much more you can afford to borrow, any changes in interest rates and subsequent increases in mortgage repayments.
A professional valuation of your property will be needed, therefore it's im0portant to factor in this cost as well. Moreover, as you buy more shares, your rent reduces, but your mortgage cost may increase, so careful financial planning is crucial for successful staircasing.
Step-by-step guide to help with the staircasing process
Remember, staircasing is a great way to increase your homeownership percentage and eventually own your shared ownership property outright. By following these steps and seeking guidance from your housing provider.
- Consult with your housing provider: Before starting the staircasing process, it's important to contact your housing provider, such as a housing association or developer, to understand the specific rules and requirements they have in place. They will provide you with the necessary information and guidance.
- Check your eligibility: Determine whether you meet the eligibility criteria set by your housing provider, as certain restrictions may apply. This could include having a good payment history, meeting minimum income requirements, or living in the property for a specific number of years.
- Get a valuation: In order to determine the price to buy additional shares, you'll need to arrange for a valuation of your property. You'll need to hire a professional valuer approved by your housing provider to assess the current market value.
- Apply for additional shares: Once you have the valuation, you can apply to buy additional shares in your property. You'll need to fill out an application form provided by your housing provider and submit it along with the necessary supporting documents.
- Mortgage and financing: If you require a mortgage to purchase additional shares, you'll need to contact a mortgage lender and get a mortgage agreement in principle. Make sure to compare different lenders to find the best deal tailored to your needs.
- Legal process: Once your application is approved, you'll need to appoint a solicitor who specializes in shared ownership to handle the legal aspects of the staircasing. They will guide you through the necessary legal paperwork.
- Completion: Once all the legal processes are completed, you'll become the owner of the additional shares of your property. Your housing provider will update their records accordingly, and you will be responsible for paying the associated fees and charges for the increased ownership.
Staircasing might seem complex. Understanding the process might help with any concerns. For instance, many fear unforeseen costs—while there are fees, they are typically predictable and straightforward. Others worry about the timescales involved, a simple plan can ensure can make it easier to make you follow each step towards successfully increasing your share.
Can I purchase an additional share in my property at any time?
This varies depending on your lease and housing association, though generally, you can staircase a year after the initial purchase.
Will I need a new mortgage?
If you cannot afford the new share with savings, you'll need to re-mortgage. Speaking with a financial advisor, mortgage broker or your housing association, as they might suggest the best course of action.
What are the benefits of staircasing in a shared ownership?
The benefits of staircasing include the opportunity to reduce the rent you pay, increase your share, and sometimes, you may completely do away with rent payments if you owned 100%. It also gives you the option of selling your shared ownership home at open market value if you staircase to 100%.
How much does staircasing usually cost and what does it involve?
The cost of staircasing usually depends on the current market value of your home, the price of the share you wish to buy, and other costs such as your shared ownership mortgage application fee, valuation fee, and solicitor’s costs. The staircasing process will normally involve a new valuation, which must be done by a RICS certified surveyor and applying for a mortgage.
Do I have to pay stamp duty on staircasing transactions?
The requirement to pay stamp duty when you buy more shares in your shared ownership property depends on the staircasing transaction and total value of your home. For instance, if you staircase to 100% share of your home in one transaction, you may need to pay stamp duty.
Can I use a solicitor to help me staircase?
Yes, it is advisable to use a solicitor for all conveyancing transactions including staircasing. The solicitor will ensure all the legal paperwork is done correctly and help guide you through the process.
Do I need to staircase to 100% ownership?
You do not necessarily need to staircase to 100% ownership. This is known as interim staircasing, where you increase your share of the property gradually. The decision should be based on what is most affordable and beneficial for you.
What is the purpose of interim staircasing transactions?
Interim transactions for staircasing are for owners who want to increase their shares in a shared ownership property gradually instead of buying all at once. This can be more affordable and can still decrease the amount of rent you need to pay.
How do I determine the share of my home I can buy?
The share of your home that you can purchase through staircasing will depend on what you can afford. This will be determined by a new valuation of your home, your earnings, expenditure, and the terms of your shared ownership agreement.