In the face of rising mortgage interest rates, shared ownership schemes have emerged as a beacon for potential homeowners. An important aspect of shared ownership properties is “staircasing.”
Understanding Staircasing
Staircasing allows individuals with shared ownership properties to incrementally buy more shares in the property from their landlord.
As your ownership percentage grows, your monthly rent decreases since you’re only paying rent for the portion you don’t own.
If you have a mortgage on the remaining part of the property you own that increases as you staircase, monthly repayments may increase instead.
Staircasing can be approached in two ways: gradual or standard. It’s vital to recognise that each shared ownership agreement is unique; hence, certain specifics mentioned below might differ based on your contract.
Gradual Staircasing
Opting for gradual staircasing provides an economical avenue to increase your property shares. This method limits you to purchasing one per cent of your property annually.
The valuation of this one per cent is aligned with the House Price Index (HPI) and reflects the property’s initial value and its fluctuations over time. Each year, when you express interest in acquiring the one per cent share, the landlord provides this value.
Alternatively, a valuation from the Royal Institution of Chartered Surveyors (RICS) can be utilised. The party requesting the RICS valuation will bear its costs. Furthermore, this valuation can be employed for subsequent HPI evaluations.
This form of staircasing is less commonly used by developers and housing associations now, but it may remain a feature of some historic property purchases.
Standard Staircasing
The standard method is more flexible, permitting you to buy additional shares whenever you wish, as long as it’s a minimum of five per cent.
The share’s price is determined by the property’s current value when you intend to purchase. A RICS valuation is mandatory in this method, with the landlord informing you about the booking procedures.
Purchasing five per cent or more may incur a fee, determined by the landlord, typically ranging between £150 and £500. If you’re interested in acquiring more shares post the RICS valuation, it should be within three months, or another valuation will be necessary.
Other Key Points
Any upgrades to the property can affect its valuation.
If you’ve enhanced your home, two assessments may be required: one pre-improvement and one post-improvement. If the landlord had previously granted permission for the upgrades, the valuation (and consequently the shares you buy) will be based on the pre-improvement price. Without permission, post-improvement prices will apply, raising the cost of the shares.
For guidance on shared ownership and staircasing, we’re here to assist. Don’t hesitate to reach out.
Disclaimer: The terms and conditions for staircasing and the percentage ownership of the home can vary significantly from one property to another. This largely depends on the specific contract agreed upon with the developer or housing association. Always consult your property agreement or seek legal advice to understand your specific situation.
