Shared ownership schemes are helpful in allowing people to buy their homes, especially given how high mortgage interest rates are at present.
One of the processes commonly associated with shared-ownership properties is staircasing.
What is staircasing?
Staircasing is the process whereby somebody who owns a shared ownership property gradually buys further shares in the property from the landlord. You can buy additional shares until you own 100 per cent of the property.
One of the advantages of staircasing is that the more shares you buy, the less rent you will have to pay the landlord on the rest of the property each month. This is because the amount of rent that you pay is based on the shares of the property that you don’t own.
The process of staircasing can be done in two different ways – gradual staircasing, and standard staircasing. The type of staircasing you choose depends on how much you are able to pay.
It should be noted that some shared ownership agreements have different terms and conditions so the following information may not be applicable to your lease. The percentage of the property that you can buy may differ and the option of gradual staircasing may not be available.
Gradual staircasing
Gradual staircasing is the lower-cost way of buying more shares of your property. Here, you can only buy one per cent of your property each year.
The one per cent is based on the original value of the property, and how it has increased or decreased in line with the House Price Index (HPI) measure of inflation. This value will be given to you by your landlord every year that you ask to buy back one per cent shares.
However, you or your landlord can also use a Royal Institution of Chartered Surveyors (RICS) valuation. Whoever requests a RICS valuation will be liable to pay for it, and it can be used as a basis for future HPI assessments.
Standard staircasing
With standard staircasing, you can usually purchase additional shares at any time you want, so long as you are buying them at five per cent or more.
The cost of your new share will be calculated based on the value of your property at the time you want to buy the share.
Here, you must have a RICS valuation, and your landlord will let you know who needs to book the assessment.
The landlord may charge you a fee any time you want to buy five per cent or more of your property, which will be set by them and can range from between £150 to £500.
If you would like to buy further shares, then you must do this within three months of the RICS valuation, or else you will have to have another surveyor out to value your home.
Additional information
If you have made improvements to your property, then these may impact the value of the property.
If this is the case, then you will need to have two valuations; one for the price of your home before the improvements, and one after the improvements.
If you have written permission from your landlord to carry out the work, then your valuation will be based on the property before the improvements were made, meaning that the shares you buy will be lower in price.
However, if you do not have written permission from the landlord, then the valuation will be based on the property after the improvements were made. This means that the shares you want to buy will now cost more.
If you would like advice on shared ownership and the staircasing process, please do not hesitate to get in touch.