Staircasing, how you buy more of your own home?

Shared ownership has become a popular way to own a home, and staircasing offers homeowners the flexibility to own more of their property, at a pace that suits them.

But should you consider staircasing? In this blog, we will look closely at the process, the pros and cons, and the cost. If you’re wondering what staircasing is or want to find out more about this homeownership strategy, read on.

What is staircasing?

Staircasing is the process of gradually increasing your share in a shared ownership property. Initially, buyers purchase a percentage (usually between 25% to 75%) of the property and then have the option to increase their ownership over time.

As of 2021, the government introduced changes to the Shared Ownership Scheme as part of their new Affordable Home Programme. This initiative was focused on injecting a large sum (£12 billion or so) into the housing sector to generate new housing, as well as helping buyers get on the property ladder. However, it’s worth noting that the new scheme rules do not cover existing shared owners.

Changes to the previous shared ownership model:

1. Reduced the minimum initial share from 25% to 10%

2. Introduced a new gradual staircasing offer, to allow people to buy additional shares in their home in 1% instalments with heavily reduced fees

3. Introduced a 10-year period during which the shared owner will receive support from their landlord to pay for essential repairs

4. Give shared ownership leaseholders (shared owners) more control when they come to sell their home.

In can be difficult to raise large sums outright, often leading people to borrowing money and incurring costly fees. Under the new model, in addition to being able to staircase in larger amounts, shared owners will have the option to buy 1% each year for 15 years with heavily reduced fees.

If a homeowner purchases 100% of the property, they will no longer pay rent to the housing association, and there is even an opportunity to obtain freehold ownership.

What is the staircasing process?

Step 1: Check the terms of your lease

If you bought your shared ownership property before the new scheme, you need to notify your housing provider.

Some housing providers might limit the shares you’re able to buy in your property, putting a cap on the ownership amount. Before doing anything, check what’s possible as per your contract and know your limitations.

Step 2: Get a property valuation

You’ll need to get a valuation of your home. This will determine how much the shares will cost you. On the old scheme, buyers needed an independent party to value the home. The valuation is valid for 3 months, so it’s important to get your ducks in a row in terms of being ready to financially commit to the process, before the market value changes.

In the new scheme, landlords are required to provide an annual updated valuation based on the most up to date House Price Index (only applicable to those wishing to incrementally purchase their home by 1%). They must also do this when a homeowner requests to purchase 1%. Similarly to the previous scheme, the valuation will be valid for 3 months.

Step 3: The legal process starts

Once you’re happy with the valuation, you can notify the relevant associations and start the legal process.

Who is eligible for staircasing?

Staircasing is generally available to all shared ownership homeowners. However, there may be specific eligibility criteria set by the housing association or local authority. It is essential to check with the relevant authorities to ensure you meet the requirements for staircasing.

Staircasing: the pros and cons

Increased ownership

Becoming the sole owner of your property means you increase security. Rather than being vulnerable to losing your home as a renter if you don’t keep up with payments, you’ll own your home outright. It also allows for greater freedom when selling (but always check your lease obligations).

Financial flexibility

Ability to buy additional shares when financially feasible, and the higher the percentage of property you own the less rent you will pay to the housing association.

Potential for Capital Gains

As property value increases, so does the value of your owned shares.

But it’s worth talking about the potential downsides to staircasing:

Market fluctuations

Property values can go down, affecting the potential return on investment.

Complex Process

Staircasing involves legal and financial intricacies, costs and obligations.

Potential restrictions:

Certain restrictions may apply based on your housing agreement.

Let’s dig deeper into this.

The restrictions on staircasing

Originally, homeowners were limited to staircasing just 3 times. But in 2022 that changed, with the restriction being lifted for most properties. In some cases, homeowners are only allowed to purchase up to 80% of the property. Check with your provider and the terms of your lease to check for limitations on staircasing.

Because there are fees incurred every time you staircase, it’s not always advantageous to purchase your home in small increments.

What are the costs involved in staircasing?

As with any purchase, you need to have a 360 view of the costs involved, and to thoroughly assess if this is the right financial decision for you. Staircasing does incur charges and admin fees, so it’s worth getting eyes on those in advance.

Stamp duty

Depending on the value of your shares, you may incur the cost of stamp duty. If you’re a first-time buyer, you will benefit from stamp duty relief, meaning you’ll pay a reduced rate depending on the value of the property. Because you’re only purchasing a set percentage of the property, you may not have to pay that stamp duty if the total value sits below £475,000. This does mean that when you start to increase your shares, for example to 80%, you will need to pay the stamp duty sum as and when your property value hits the threshold.

Conveyancing

You will need a legal team to help you navigate the shared ownership staircasing process, as this is still a property transaction. Our conveyancing specialists can help.

Surveys

You’ll need to factor in the expense of your valuation and any survey costs.

Consider how you’ll pay for your shares

You can use savings, extend an existing mortgage, remortgage, or utilise other types of borrowing to pay for your additional shares, but you need to look at the fees and interest attached to each option. Contact your mortgage provider to discuss relevant mortgage fees.

Though you don’t need a deposit to staircase (you can use the equity accumulated in your current shares), having an additional deposit will give you the opportunity to purchase a larger share.

Selling a shared ownership home

You can sell your shared ownership home whether you own a portion or 100% of the property. If you own your home outright, you can sell to market, but if it’s shared, there are some things to note.

You’ll have to organise and pay for a RICS valuation, and your provider will have to be notified so that they have a window of exclusivity to sell the property. After this window, you can sell to the open market and involve an estate agent.

For leasehold properties, homeowners that own their house outright may be required to sell their property to the housing association. Check the terms of your lease to get a full picture of your obligations and restrictions.

Get in touch with our team today to discuss your staircasing goals and conveyancing needs.