Shared ownership offers a unique path to homeownership, allowing buyers to purchase a portion of a property while paying rent on the remaining share. Many shared owners aim to increase their ownership stake over time through a process called staircasing.
Staircasing lets shared owners buy more shares in their home, gradually reducing their rent payments and increasing their equity. This flexible approach allows homeowners to boost their ownership at a pace that suits their financial situation. Typically, homeowners with a shared ownership mortgage can staircase up to 100% ownership, ultimately becoming outright owners of their property.
For those considering staircasing, it’s important to weigh the benefits against potential costs. While increasing ownership can lead to lower monthly rent and greater long-term financial gains, it also involves additional expenses such as valuation fees and legal costs. Shared owners should carefully assess their finances and future plans before embarking on the staircasing journey.
Understanding Shared Ownership and Staircasing
Sharetobuy ownership lets buyers purchase a portion of a property and pay rent on the rest. Staircasing allows increasing ownership over time.
Key Features of Shared Ownership
Shared ownership properties are part buy part rent homes. Buyers purchase a share, typically 25-75%, and pay rent on the remaining portion. This scheme helps people get on the property ladder with a smaller deposit and mortgage.
Shared owners can live in the home as their main residence. They are responsible for maintenance and repairs. The housing association owns the other share and charges rent.
Buyers can often purchase 1-bedroom flats up to 3-bedroom houses through shared ownership. New builds and resale properties may be available. Eligibility criteria usually apply, like income caps and local connections.
Staircasing Explained
Staircasing means buying more shares in a shared ownership home. Owners can increase their share gradually, often in 5-10% increments. Some can staircase up to 100% ownership.
To staircase, owners need a property valuation to determine the current market value. They then buy additional shares at this price. More equity means lower rent payments.
Benefits of staircasing include building equity faster and reducing rent costs. Full ownership eliminates rent altogether. But fees apply for valuations and legal work.
The new shared ownership model introduced a 1% staircasing option. This makes buying extra shares more accessible. Some homes have a staircasing cap, limiting total ownership.
The Financials of Staircasing
Staircasing involves several financial aspects to consider. The process requires careful planning and evaluation of costs, property valuation, and shared ownership mortgage options.
Evaluating the Costs
Staircasing comes with various expenses. Legal fees for a solicitor or conveyancer can range from £500 to £1,000. Valuation fees, set by the Royal Institution of Chartered Surveyors, typically cost £300 to £600. Mortgage fees may apply if you’re getting a new loan or remortgaging.
Stamp duty might be due on the extra share you buy. The amount depends on the property value and your current ownership percentage. Some housing associations charge admin fees, usually around £200.
It’s wise to set aside extra money for unexpected costs. Getting quotes from professionals can help you budget accurately.
Understanding Valuation and Equity
Property valuation is crucial in staircasing. An independent surveyor assesses your home’s current market value. This determines the cost of additional shares.
If your property has increased in value, buying more shares will be pricier. But it also means you’ve gained equity. Equity is the difference between your home’s value and the amount you owe on your mortgage.
For example, if you own 50% of a £200,000 flat, your share is worth £100,000. If the flat’s value rises to £220,000, your 50% share is now worth £110,000. This £10,000 increase is your equity gain.
Exploring Mortgage Options
When staircasing, you’ll need to fund the extra share purchase. Many shared owners use a mortgage. You have two main choices:
- Remortgage: Switch to a new lender or deal to borrow more.
- Further advance: Borrow extra from your current lender.
Both options require a new affordability assessment. Lenders will check your income, outgoings, and credit score. They’ll want to ensure you can afford the higher repayments.
A mortgage broker can help you find the best deals. They’ll consider your financial situation and staircasing plans. Some brokers specialise in shared ownership mortgages.
Remember, bigger shares mean larger mortgage repayments. But they also reduce your rent payments to the housing association. It’s important to weigh up these changes in your monthly costs.
How to Navigate the Staircasing Process
Staircasing allows shared ownership homeowners to increase their property share. The process involves several key steps and professionals to help you along the way.
Beginning the Journey
Start by contacting your housing provider to express your interest in staircasing. They’ll provide forms to fill out and explain the next steps. Use a staircasing calculator to estimate how many extra shares you can afford. This tool considers your income, savings, and current property value.
Check if you’ve made any home improvements. These may affect your home’s value and the cost of additional shares. Your housing provider will need details of any changes.
Look at your finances carefully. Can you afford to buy more shares and cover the associated costs? Remember, your rent will go down, but your mortgage payments will likely increase.
Selecting a Solicitor and Surveyor
Choose a solicitor experienced in shared ownership. They’ll handle the legal side of your purchase. Ask your housing provider for recommendations if you’re unsure where to start.
An independent surveyor must value your property. Your housing provider will arrange this, but you’ll need to pay for it. The valuation is valid for three months, so act quickly once you have it.
Your solicitor will review the valuation report. They’ll also check for any issues that might affect your purchase. If you disagree with the valuation, you can challenge it, but you’ll need strong evidence.
Completing Your Purchase
Once you’re happy with the valuation, inform your housing provider how many extra shares you want to buy. They’ll calculate the cost based on the current market value.
Your solicitor will handle the legal paperwork. This includes updating your lease to reflect your new share. They’ll also deal with your mortgage lender if you’re borrowing more money.
On completion day, you’ll pay for your new shares. Your solicitor will transfer the money to your housing provider. Your lease will be updated, and you’ll own a larger share of your home.
Remember, you can staircase multiple times. Some providers now offer 1% annual increases. Check your lease for any restrictions on how often you can staircase.
Living with Partial Ownership
Shared ownership comes with unique financial obligations and lifestyle considerations. Owners must balance rent and mortgage payments while weighing the impacts on their daily lives.
Monthly Financial Commitments
Partial owners make two main payments each month – rent and mortgage. The rent goes to the housing association for their share of the property. The mortgage covers the owner’s share. As ownership increases through staircasing, rent decreases but mortgage payments rise.
For example, someone with a 25% share might pay £300 in rent and £400 for their mortgage monthly. After staircasing to 50%, their rent may drop to £200 but mortgage could increase to £700.
Service charges are another cost to budget for. These cover building maintenance and repairs. Owners pay the full amount regardless of their share size.
Impact on Lifestyle and Flexibility
Partial ownership offers a mix of renter and owner benefits. Owners can decorate and make some changes to their home. But major renovations often need landlord approval.
Selling can be trickier than with full ownership. The housing association usually has first refusal to buy back the property. This process can take longer than a standard sale.
Moving may be harder too. Owners might struggle to afford a similar sized home in the same area if property values have risen sharply.
Still, shared ownership allows people to get on the property ladder sooner. It provides stability without the full financial burden of outright ownership.
Achieving 100% Ownership
Reaching full ownership of a shared ownership home is a significant milestone. It marks the end of rent payments and gives you complete control over your property.
The Final Step in Staircasing
The last stage of staircasing involves buying the remaining share of your home to reach 100% ownership. You’ll need to contact your housing association to start this process. They’ll arrange for an independent valuation to determine the current open market value of your property.
The cost of the final share will be based on this valuation. You may need to secure a new mortgage or extend your existing one to cover the purchase. It’s wise to shop around for the best mortgage deals at this stage.
Once you’ve bought the final share, you’ll stop paying rent to the housing association. You’ll become the sole owner of your home, just like any other homeowner.
Adjusting to Full Homeownership
After reaching 100% ownership, you’ll face some changes. You’ll no longer pay rent, but you might see an increase in your mortgage payments. You’ll also become fully responsible for all repairs and maintenance costs.
On the plus side, you’ll have more freedom to make changes to your home without needing permission. You can also sell your property on the open market if you wish, without restrictions.
It’s important to budget for new costs like buildings insurance and service charges if you live in a flat. You might also want to consider life insurance to protect your investment.
Full ownership can increase your property’s value and give you more security. But it also means taking on more financial responsibility. Make sure you’re ready for this step before making the leap to 100% ownership.
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