What is a staircasing mortgage?
A staircasing mortgage is a mortgage used to acquire more shares in a shared ownership property.
Staircasing is the process of increasing the amount of ownership you have in a shared ownership property.
You can do this for properties bought on resale as well as through the shared ownership scheme. You should check with your landlord for any restrictions that might stop you from staircasing as you please.
You might require the services of a solicitor to fully understand the terms of your agreement with your landlord and any restrictions placed on your ability to staircase.
As you buy more shares into the property you will pay less rent as your landlord will now own less of the property.
Staircasing will also give you greater ownership which means if you decided to sell the property you will benefit more from any capital appreciation.
Full ownership will allow you to benefit from any home improvements and allow you to make home improvements without needing to seek approval from your landlord.
100% ownership will allow you to sell your property to anyone without them needing to meet the shared ownership eligiblity criteria.
How does a staircasing mortgage work?
Staircasing works by allowing you to purchase more shares of the property. Shares are sold at a proportional market value at the time of sale. E.g you own 50% of a £1m shared ownership home and you want to increase your shares by another 10%. If the current value of the home is £1m you will be required to pay £100,000 for another 10% shares of the property. This should also proportionately reduce your rent by 10%.
There are a few general guidelines in place for staircasing. This guidelines are subject to change so you should request a copy of any guidelines from your current landlord.
Shares can only be purchased in 4 steps including the first purchase of equity.
This means you can only staircase 3 times to reach the maximum 100% of shares which give you full ownership of the property.
All costs incurred during the staircasing process are yours to bear. This include legal fees, conveyancing, mortgage fees etc.
Your landlord will expect to receive continuous rent payments as agreed in your terms whilst the staircasing mortgage process is in progress. If you fail to pay your landlord any arrears such as rent, he could cancel the staircasing process immediately.
Property valuations are carried out by a royal institute of chartered surveyor (who provides at least two comparable valuations from similar properties to inform you on how he reached his current valuation) and if you dispute the valuation you can get another one done but at a cost to you.
The shared ownership property valuations are usually only valid for 3 months.
You might have other restrictions on your current agreement with your landlord which you must review thoroughly before you begin the staircasing process.
If there is more than one owner or names listed in the agreement aside from the landlord, all parties will have to agree to the staircase.
If you become a 100% owner you can request the freehold of the property to be transferred to you at no cost to you.
Contact a specialist solicitor and inform them of your intentions (preferably the solicitor who worked on your initial acquisition of the property. You should request a quotation and its always best to select a fixed fee quote with a solicitor who has vast experience of shared ownership transactions.
Contact a qualified digital mortgage broker to get a mortgage agreement in principle on how much a lender will loan to you and at what rate. This will help you avoid any delays further down the road.This should only be done if you are not paying in cash.
Request a staircasing application form from your landlord, return the form filled and pay your landlord the property valuation fee.
Your landlord will instruct a royal institute of chartered surveyors valuation report and will receive two copies of this once the valuation has been carried out
Your landlord will send you an official offer letter (including a staircasing authorisation form) with the valuation reports. You have 3 months to get back to your landlord.
You and the landlord will instruct your respective solicitors
You will now apply for a mortgage offer via your digital mortgage broker. Once a mortgage offer is received, you will notify your solicitor
Your solicitor and the landlords solicitor will set a closing data and begin work
Your landlord will issue the completion statement which highlights, next steps, your future costs, including service charges, rent etc.
You will then complete the staircasing transaction and be notified of your new rent etc.
What are the costs included with a staircasing mortgage?
You will have to take care of
- The mortgage fees
- Any solicitor fees
- Any valuation fees
- Stamp duty
- Home insurance (In the case of 100% ownership you will be liable for your own home insurance and no longer your landlords)
We hope this staircasing guide was easy to read and insightful. If you still need some more info, get in touch with us and we will be happy to assist you further.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.