Staircasing Mortgages
What is a Staircasing Mortgage?
Staircasing is the process of increasing your share of a Shared Ownership property in stages over time. You may start Shared Ownership with 25% or 50% of your property, and as your circumstances change you will be able to add to the portion that you own, typically in increments of 25%, until you achieve 100% ownership, if you wish to.
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With every additional share that you purchase, you will need to increase the size of your mortgage. Obviously, your monthly mortgage payments will also increase, but the amount of rent you pay will correspondingly go down and your money will be stored as equity in your property rather than going to the landlord.
What are the benefits of Staircasing?
The Shared Ownership scheme is an excellent way for people who would not normally be able to afford their first step on the property ladder to get the chance to start their home ownership journey. Under the scheme, you are able to buy a portion or share of a property available from an approved body such as a Housing Association or local authority. This means you will only need a smaller mortgage in proportion to the share you own, and a smaller deposit, but you will pay rent to the approved body for the remaining share.
One of the main attractions of the Shared Ownership scheme is the ability over time to increase your investment through the process known as ‘staircasing’. The specialist advisors at The Mortgage Centres will be able to advise you every step of the way to find the most appropriate mortgage to meet your needs.
Staircasing mortgage advice
Shared Ownership is a great way to get on the property ladder, and staircasing your mortgage can make the process affordable while ensuring you are still on the best deal for your circumstances. However, there are a few pros, cons and pitfalls to be aware of. Speaking to an experienced specialist mortgage advisor, such as a member of the team at The Mortgage Centres, will give you all the information you need to know if staircasing will be the right way for you to go, and which products will be the most suitable.
How to buy your way up to 100% ownership of your property
If you already own a part-share in a Shared Ownership property, then it’s a fairly straightforward process to purchase additional portions and get on the road to owning 100% of your home. The first stage is to get in touch with the organisation that co-owns the property with you and acts as the landlord in the context of the rent you pay – this is an approved body such as the local authority, Housing Association or responsible developer. Talk to them about your plans, your budget and how much more of the property you want to buy.
All going well, the next stage will be to obtain the necessary loan to fund your additional purchase. You will likely need to talk to a mortgage broker with experience in Shared Ownership mortgages – such as ourselves at The Mortgage Centres – to find out what your options will be.
There are generally two ways to raise funds using a mortgage:
Increasing the level of your existing mortgage
- Your current lender may be willing to extend a further advance to you to help you buy more of your home. As with other mortgage deals, each lender will have their own criteria to determine how much they will be prepared to lend, based on an income assessment, the loan’s affordability and the value of the property.
- You may be able to get a better deal on the loan by taking out a new mortgage to pay off your existing agreement and also purchase the additional portion of your home. Again, your application will be subject to the usual criteria.
You will need to get a qualified surveyor to conduct an up-to-date valuation of the property in order for you to find out how much you will have to pay for the additional share of your home.
The pros and cons of Staircasing
When taking out a Shared Ownership mortgage and looking into staircasing to increase your share of the property, there are a number of aspects you need to consider, both positive and negative of staircasing.
Shared Ownership is an affordable way to get your start on the property ladder, typically works out cheaper than renting and means that the money you pay back on the mortgage will be stored in the value of your home. With staircasing you are able to increase the share you own of your home as and when you are able to, up to 100% full ownership of the leasehold. You are also able to sell your property, or share, at any time, and will benefit from any increase in the property’s value.
Property prices have generally remained strong, so the value of your home may have increased. Any additional portion of your property that you buy will obviously be at the prevailing value, and so the new share may be a lot more expensive than your initial purchase. You will also have to cover other costs, such as the valuation fee and potential Stamp Duty. You will still have to pay rent on any share of the property owned by another party.
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications
Financial Planning Certificate: 1,2 & 3
Year Attained: 1992
Certificate in Mortgage Advice and Practice (CEMAP)
Year Attained: 2001
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