Visionary Finance: Shared Ownership staircasing – what are my options?
Find out about buying more shares in your part-buy part-rent home
For buyers unable to enter the housing and property market by ‘conventional’ means, when Shared Ownership was introduced by the government in the 1980s it became a viable alternative route to home ownership.
By giving first time buyers the chance to purchase a share in a new build housing association property, Shared Ownership helped many buyers onto the property ladder at a time when house prices were increasing, and first time buyers were struggling.
In 2021, Shared Ownership is still a popular route into the property/homeowner market and many first time buyers favour this option of buying 25-75% of a property, paying rent on the rest and eventually staircasing their way to (in some cases) full 100% ownership.
Here, Milton Keynes mortgage brokers Visionary Finance help you to negotiate the staircasing maze and answer the main questions we get asked along the way.
What is staircasing?
Staircasing is the name of the process that allows you to gradually build up your ownership of your Shared Ownership property.
As an example, if you purchase your property through the Shared Ownership scheme, you may start off owning 25% of the property and paying rent on 75%. Staircasing allows you to increase the ownership portion of the agreement and decrease the rental portion.
What are the benefits of staircasing?
The main benefit and the reason that most people staircase, is that you will own more of the property and pay less or no rent. If you are able to staircase to 100% ownership, there will be no rent payable at all, and the property is yours, which means you can also benefit from any increase in the value of the property (of course, the mortgage repayment portion of your monthly payments will increase, so be sure to take advice before deciding to staircase).
In addition, if you staircase to 100% ownership of your home, you will benefit from more mortgage choice. Owning 100% of your home will mean that you can get a standard mortgage rather than a Shared Ownership mortgage. Because of the special nature of Shared Ownership mortgages, they tend to have higher and more expensive interest rates.
Also, if you own 100% of your property, you have the freedom to sell whenever you want. Please be aware that if your property is leasehold, you will have to offer it back to the housing association first and if you own less than 100%, your housing association will have the opportunity to find someone to buy your share first.
Finally, we can’t underestimate the value of the security of owning 100% of your property. No rent increases, no rental tenant restrictions and any money spent on the property is spent on YOUR property, not a landlord’s house.
When can I staircase Shared Ownership?
Your lease will tell you how soon you can staircase your Shared Ownership property – usually one to two years after initial purchase.
So, for the first year or two, you may own 25% of your property and pay 75% rent, but after the time stated on the lease, you could choose to purchase an extra 25% of your property, which would mean that you now own 50% and pay rent on the other 50%.
Can I staircase in stages/how many times can I staircase?
You can definitely staircase in stages, but it is worth checking your lease as some have stipulations on how many times you can staircase.
Most leases will have a limit of three staircasing rounds; therefore, it is in your interests to staircase the maximum amount possible each time in order to reach 100% ownership.
Do I need to remortgage to staircase?
Further shares can be paid for in a number of ways, including from savings/pension pot, a further advance on your existing mortgage or by remortgaging either with your current lender or a new provider.
The property you are staircasing is more than likely no longer classed as a new build property, and the overall value will likely have changed, so in most cases, remortgaging is the best way to staircase.
If you are looking at ‘interim staircasing’ to increase your share of ownership but not yet to 100%, the housing association must approve the mortgage offer and you cannot borrow more than the amount needed to buy the extra shares. If it is ‘final staircasing’ where you will then own 100% of your property, the mortgage loan does not have to be approved and you could in fact borrow extra on top for expansion/renovation works.
How much does staircasing cost?
In addition to the fees that you pay for the extra shares, you will need to pay other costs.
- Legal fees – you will need a conveyancer or a solicitor to handle the legal side of the staircasing.
- Survey costs – there will need to be a valuation survey of your property to determine the price of your extra shares, so you will need a surveyor.
- Mortgage fees – you may need to pay fees for a new or remortgage, and you will need to speak to your mortgage broker about this.
- Stamp Duty – You may have to pay Stamp Duty on the value of the additional shares you are buying. See below for more on Stamp Duty.
The cost of the above will vary; however, a good rule of thumb is to allow an extra £2,000 on top of the cost of the additional staircasing shares.
Staircasing and Stamp Duty
When you purchased your share of your Shared Ownership home, you would have been given a choice about how to pay Stamp Duty – in full or in stages.
In full is a one-off payment which is based on the total market value of your property at the time of buying.
Staged payment means that you pay the Stamp Duty owed on each stage of shares that you buy.
You can find out more about staircasing and Stamp Duty here.
Why can’t I staircase to 100%
In some cases, you will be unable to staircase to 100%.
This could be for a few reasons:
- Some housing associations may have restrictions on certain properties that will not allow you to staircase to 100%.
- If you are part of the Older Persons Shared Ownership scheme, you will be restricted to staircasing only to 75%.
- In general, you can only staircase three times to get to 100%, so if you staircase in smaller amounts it may not be possible to reach 100%. This is why we suggest staircasing for the maximum amount you can afford each time, even if it means saving up for longer.
What happens after final staircasing?
Once you have reached 100% ownership of your property, you no longer have to pay any rent.
The property is effectively yours (although there may be service charges to pay – check with your housing association about this).
You are able to sell the property without involving the housing association, and in the case of a house, you could be able to purchase the freehold from the housing association.
Do I have to staircase, or can I stay in Shared Ownership?
You don’t have to staircase at all – it is completely up to you. You can choose to stay with your initial rental/ownership deal, staircase part of the way to 100% ownership, or staircase all of the way. There is no obligation to buy more shares, so the choice is really yours.
Can I sell my home after staircasing?
Yes, you can. It does depend on how much of your home you own as to how selling works.
- If you still own less than 100%, you will probably be required to let the housing association know that you want to sell and allow them time to find a buyer. This period of time is usually around two months; full details should be in your lease.
- If you own 100% of your property, you will be able to sell it through whomever you want, without letting the housing association know.
OK, I’m ready to staircase – what now?
Here are the steps you will need to take in order to start the staircasing process:
- Contact your housing association and let them know that you want to purchase additional shares.
- Have your house valued by a surveyor to determine the current market value.
- Once you have your valuation, your housing association will make you an offer of a price to purchase the shares you are looking to buy.
- Once you accept the valuation and offer, your HA will issue a Memorandum of Sale.
- You will need to instruct your solicitor to represent you in the purchasing of your shares.
- Contact your mortgage broker who will explore your mortgage options; this could be a mortgage with your current lender, or a remortgage with a new lender.
- If you are staircasing to less than 100%, your mortgage offer will need to be sent to your housing association for approval. If you are staircasing to 100%, this step is not necessary.
- Complete your additional shares purchase within three months of the valuation at Step 3.
- Your rental agreement will be adjusted to show the portion of rent you now need to pay.
If you are looking to staircase your way to owning more or all of your property, Visionary Finance can find the best staircasing mortgage for your needs. You can contact them via visionaryfinance.co.uk or on 01908 465100.
Share to Buy is a one stop shop for affordable homes. On our website, you can search for properties, compare mortgages and find out all you need to know about alternative home buying schemes such as Shared Ownership and Help to Buy.