Did you know that an increasing number of first-time homebuyers in the UK are choosing shared ownership properties as their gateway to the property market?
While shared ownership can be a fantastic opportunity to make homeownership more accessible, understanding the ins and outs of staircasing - the process of increasing your ownership share - can be a daunting task.
In this essential guide, we break down the complexities of staircasing in conveyancing, empowering you to make confident, informed decisions as you progress on your journey towards full homeownership.
What is shared ownership property?
Shared ownership property is an affordable housing scheme designed for first-time buyers who cannot afford to purchase a property outright.
It allows a first time buyer to buy a share of a property (usually between 25% and 75%), rather than the whole, and pay rent on the remaining share, which remains owned by a housing association or other housing provider.
Shared ownership properties offer several benefits, including a lower deposit requirement and more affordable monthly payments. However, there are also drawbacks, such as limited control over the property and potential restrictions on selling or modifying the property.
In many shared ownership arrangements, owners have the option to increase their ownership share over time.
What is staircasing?
Staircasing is the process of increasing your ownership proportion in a shared ownership property.
This can be done in increments, usually a minimum of 10% at a time, until the buyer owns 100% of the property.
When staircasing is complete, the buyer's ownership share will have increased, with the effect that the rent payable to the housing association or housing provider will have decreased.
What are the advantages and disadvantages of staircasing?
The benefits of staircasing include greater control over your property and increased security, and reduced overall housing costs in the longer term. For example, if you own your property outright, you won't have to pay ground rent.
However, the drawbacks are short term costs for professional fees involved in the process, and a possible negative impact on your eligibility for other affordable housing schemes. Depending on the value of the share you buy, you may have to pay stamp duty.
What costs are involved in staircasing?
The costs involved in staircasing include surveyor's fees for the valuation and solicitor's fees for handling the conveyancing process.
If you are buying using a mortgage, there may be mortgage arrangement fees to pay. You might consider borrowing from a specialist shared ownership mortgage lender. To find one, ask a mortgage broker. They are usually paid commission by mortgage lenders, so using you shouldn't cost you any money.
Increasing your ownership share will likely result in higher mortgage payments, as you will be financing a larger share of the property.
Depending on the value of the property, stamp duty land tax may be payable on the purchase.
Once you are the owner of the enlarged share, your service charges and ground rent may increase. Additionally, your rental payments to the housing provider will decrease, but your mortgage repayments may increase.
It's essential to understand how these costs are calculated and have a clear breakdown of the expenses involved in staircasing before starting the process.
What is a RICS valuation?
RICS is an acronym for the Royal Institution of Chartered Surveyors.
A RICS valuation is an assessment of a property's market value conducted by a qualified surveyor who is a member of RICS. Surveyors who are members of RICS have met and continue to meet certain professional standards and are trusted by organisations such as mortgage providers to give a realistic current market valuation.
A RICS valuation is critical for staircasing. It determines the purchase price you'll pay for increasing your ownership share. Your mortgage provider will use the valuation report to make decisions such as whether you have the ability to finance the increased share, whether to lend against the property and about other terms of your mortgage.
The process of staircasing
You can break down the staircasing process into five steps:
Check your eligibility
Ensure that you meet the eligibility criteria for staircasing, which may include income requirements and restrictions on the maximum share you can own.
Obtain a property valuation
Engage an independent surveyor to value your property. This will determine the current market value of your property and the cost of increasing your share.
Secure mortgage financing
If necessary, contact your mortgage lender to discuss your options for increasing your mortgage to finance the purchase of a greater proportion of your home. You may need to arrange a new mortgage.
Instruct a specialist solicitor
To keep legal costs down, hire a conveyancing solicitor with experience in shared ownership property transactions to handle the legal work.
Complete the conveyancing process
Your solicitor will liaise with the housing association, your mortgage provider and other parties involved in the transaction to complete the staircasing process.
Final staircasing
Final staircasing refers to the process of increasing your ownership share to 100%, effectively ending the shared ownership arrangement.
The process for final staircasing is similar to partial staircasing, but it involves the full transfer of ownership from the housing association to the buyer.
You'll have access to a wider range of mortgage options including a standard mortgage rather than a shared ownership mortgage.
Where might there be problems in the process?
You don't meet eligibility requirements
Make sure you meet the eligibility criteria for staircasing in your shared ownership scheme before starting the process, as some housing associations may have specific income requirements or restrictions on the maximum share you can own.
You underestimate the financial costs to acquire a greater share of your property
Be prepared to pay the costs involved in staircasing and consider how you will finance these expenses.
Engage with your mortgage lender early in the process to discuss your options.
Hidden leasehold issues
There may be legally enforceable restrictions (known as covenants) or requirements about what owners can and can't do, and how they must act.
These may hinder your ability to sell the property in the future.
Hiring specialist solicitors with experience in shared ownership property transactions can help you navigate any legal problems that become apparent during the staircasing process.
Can I staircase in stages?
Yes, you can staircase in stages, increasing your ownership share incrementally.
Doing this can be beneficial for buyers who may not have the financial resources to staircase in a single go.
However, the potential drawback is that the costs for the process are likely to be the same regardless of how much more you buy. There may be further stamp duty to pay. So you'll want to staircase in as large increments as you can afford at that time.
Can I sell a shared ownership property after staircasing?
Yes, you can sell a shared ownership property after staircasing.
However, the process for selling a shared ownership property may differ depending on your ownership share and the terms of your leasehold agreement.
Some housing associations may have a right of first refusal or require that the property be sold to another eligible buyer under the scheme.
Ensure you understand any requirements or restrictions for selling your property after staircasing before starting the process.
In summary
Staircasing is a valuable option for shared ownership property owners who wish to increase their ownership share and reduce their rental payments over time. It is essential to understand the process, financial implications, and legal requirements involved in staircasing and work with experienced professionals to ensure a smooth and successful transaction.