Buying a home is a significant milestone in life, but for many, the cost of purchasing a property outright can be prohibitive. Shared ownership is a popular solution in the UK, allowing individuals to buy a portion of a property while paying rent on the remaining share owned by a housing association or developer. However, many people aspire to own their homes outright, and this is where the concept of “staircasing” comes into play.
In this article, we’ll delve into what staircasing is, how it works, the benefits, and considerations you need to keep in mind if you’re thinking of staircasing your shared ownership property.
What is Staircasing?
Staircasing is the process that allows shared ownership property owners to gradually increase their share of the property, to eventually own it outright. This is done by purchasing additional shares of the property from the housing association or developer over time. The more you staircase, the larger your ownership stake becomes, and the less rent you pay on the remaining share.
The concept of staircasing is particularly appealing to those who want to transition from partial to full ownership of their home. It offers flexibility, enabling homeowners to increase their equity in the property as their financial situation improves.
How Does Staircasing Work?
Staircasing typically follows a straightforward process, but there are some key steps and considerations involved:
- Initial Purchase:
- When you first buy a shared ownership property, you purchase a percentage of the home, usually between 25% and 75%. You then pay rent on the remaining portion that is still owned by the housing association or developer.
- Deciding to Staircase:
- After living in the property for a certain period (usually after 12 months, but this can vary depending on the terms of your lease), you may choose to buy an additional share of the property. This is known as staircasing. You can usually buy shares in increments of 10% or more, though the specific percentages may vary depending on your agreement.
- Valuation of the Property:
- Each time you decide to staircase, the property needs to be revalued by a chartered surveyor. The price you pay for the additional share is based on the current market value of the property, not the value at the time you initially purchased it. This means that if the property has increased in value, the cost of buying an additional share will be higher.
- Financing the Purchase:
- You can fund the purchase of additional shares through savings, a new mortgage, or by remortgaging your existing loan. It’s important to consult with a financial advisor or mortgage broker to determine the best way to finance your staircasing purchase.
- Legal and Administrative Processes:
- Just like when you first bought the property, you will need to go through legal processes when staircasing. This includes updating the lease to reflect your new ownership share and paying any associated legal fees and administrative costs. The housing association may also charge a fee for processing the staircasing transaction.
- Completion:
- Once the purchase of the additional share is completed, your ownership percentage increases and your rent on the remaining share decreases proportionally. If you eventually buy 100% of the property, you will no longer pay any rent and will have full ownership of your home.
Benefits of Staircasing
Staircasing offers several benefits for shared ownership property owners, making it an attractive option for those who want to increase their stake in their home:
- Increased Equity:
- The primary benefit of staircasing is that it allows you to increase your equity in your home. As you buy more shares, you own a larger portion of the property, which can be financially advantageous, especially if property values rise.
- Reduced Rent:
- As your ownership share increases, the amount of rent you pay on the remaining share decreases. This can result in significant savings over time, particularly if you plan to staircase multiple times.
- Pathway to Full Ownership:
- Staircasing offers a clear pathway to full home ownership. Once you have purchased 100% of the property, you will no longer need to pay rent, and you will have full control over your home.
- Flexibility:
- Staircasing is flexible, allowing you to buy additional shares as and when your financial situation allows. This makes it a manageable way to increase your ownership stake without the need for a large upfront investment.
- Potential for Increased Property Value:
- If the value of your property increases over time, the share you own becomes more valuable. This can be beneficial if you decide to sell the property in the future, as you may realise a profit on your investment.
Considerations and Challenges
While staircasing has many benefits, there are also some important considerations and potential challenges to keep in mind:
- Valuation Costs:
- Each time you staircase, you will need to have the property revalued by a chartered surveyor. The cost of this valuation is typically borne by the homeowner and can add up if you staircase multiple times.
- Market Conditions:
- The price you pay for additional shares is based on the current market value of the property. If property prices have risen since you first purchased your share, staircasing may be more expensive than you initially anticipated.
- Legal and Administrative Fees:
- There are legal and administrative costs associated with each staircasing transaction. These include solicitor fees, administrative fees from the housing association, and potential mortgage arrangement fees. It’s important to factor these costs into your decision-making process.
- Mortgage Considerations:
- If you need to take out a new mortgage or remortgage to finance the staircasing, you will need to meet the lender’s affordability criteria. This could affect your ability to staircase, particularly if your financial circumstances have changed.
- Restrictions on Resale:
- Some shared ownership properties come with restrictions on how they can be sold, even after you have staircased to 100% ownership. For example, the housing association may have the right to first refusal or require that the property be sold to another shared ownership buyer. It’s important to understand these restrictions before staircasing.
- Lease Extension:
- If you own a leasehold property, you may need to consider extending the lease, particularly if it has less than 80 years remaining. Lease extension can be costly and may affect your decision to staircase.
Is Staircasing Right for You?
Staircasing can be a great way to increase your equity in your home and work towards full ownership, but it’s not the right option for everyone. Before deciding to staircase, it’s important to carefully consider your financial situation, the costs involved, and the current property market.
If you’re unsure whether staircasing is the right move for you, it’s a good idea to seek advice from a financial advisor or mortgage broker who can help you assess your options. Additionally, speaking with a solicitor who specialises in shared ownership can provide valuable insights into the legal implications of staircasing.
Conclusion
Staircasing offers shared ownership property owners a flexible and achievable way to increase their stake in their home, with the ultimate goal of full ownership. While the process comes with costs and considerations, the benefits of increased equity, reduced rent, and the potential for full home ownership make it an appealing option for many. If you’re currently in a shared ownership property and considering staircasing, taking the time to understand the process and plan your steps carefully can help you make an informed decision that aligns with your long-term goals.
