Staircasing Mortgages

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Staircasing Mortgages

How Just Mortgage Brokers Can Help You

A shared ownership mortgage can be an excellent way for people who would ordinarily be unable to buy a home to get their foot on the housing ladder as it allows you to effectively buy a part of a property in conjunction with a house builder or housing association. It means that you take out a smaller mortgage to repay for the part of the property that you have bought, and usually with a smaller deposit.

One of the biggest benefits to buying a shared ownership property is that it can give you the option of a process known as `staircasing`.

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What is Staircasing?

In simple terms, staircasing is where those who are on a shared ownership mortgage have the opportunity to purchase a bigger share of their property when they can afford it. It means that if you, for example bought 50% of a property on a shared ownership mortgage, over time you can increase the share that you own in your property, until – if you wish – you have the full 100% ownership.

By purchasing a bigger share of your home you will reduce the amount of rent that you are paying – but of course are likely to increase the amount of mortgage repayments that you are making.

How to Buy your way up to 100% of your Property

The process of buying a larger proportion of your property is a relatively simple one. Firstly you should make contact with your `landlord` – the entity which owns the other proportion of your property – usually a house builder or housing association. You should also get in touch with a mortgage broker – such as our team here at Just Mortgage Brokers to find out what your options are.

You will probably need to raise funds to be able to buy the extra portion of your home and there are generally two way to do this:

  • A further advance – your mortgage lender might be willing to offer you a further advance. They will usually value your home to make sure that there is enough equity in it – which you may well have to pay for, as well as showing proof of earnings which will satisfy them that you can afford the repayments.
  • Remortgaging – you might want to consider remortgaging to borrow the extra money for staircasing. Here you can apply for a bigger loan which you will use effectively to pay off the old one and buy the new part of your home.

To ascertain the amount that you will be required to pay to purchase any additional share of your home, you will need to have a qualified surveyor carry out a valuation. The up to date value will then be used to calculated the price you will need to pay.

The Pros and Cons of Staircasing

There are a number of considerations which should be taken into account when you are thinking about applying for a shared ownership mortgage or intending to use the `staircasing` process.

Here are some of the pros and cons:

Pros – It can be a great way to get on the housing ladder, staircasing enables to you buy an increasingly large proportion of your property, you can sell your property whenever you want – and will benefit from any house price rises, it can often be less expensive than renting.

Cons – The price of shares in your home will follow the value – so if the value of your home increases, so will the price of your shares when you are looking to purchase, there will usually be other costs to pay such as the valuation fee and potential stamp duty.

Leasehold

Any shared ownership property will normally always be leasehold and having shared ownership of a flat or maisonette, you will be known as the `leaseholder` and the housing association or house builder, the `landlord`. It does not give you the right to buy the freehold of the flat, and a shared ownership leaseholder of a flat typically gives you the right to extend your lease only when you have `staircased` up to become the full 100% owner of your home.

If, however, you live in a house, you should be able to arrange for the freehold of your property to be transferred to you once you have become the 100% owner of the property.

Stamp Duty

If buying a re-sale property with a shared ownership mortgage then the rules for stamp duty follow the same as any other standard house purchase with your rate being charged as calculated on the price of the property for the share you are purchasing.

When you embark on a new shared ownership lease eg if buying a new build, you are given the option to either

  • Pay stamp duty as if you were buying 100% of the property
  • Pay stamp duty owed on the initial value of your share in addition to being charged against the value of the annual rent, and then pay additional stamp duty when or if you reach over 80%

To be able to make the right decision ensure that you explore the possibilities with a mortgage broker and solicitor who can help you to get the best results for your specific situation.

A staircasing mortgage as part of a shared ownership scheme can be an excellent way to get on the housing ladder. It is important, however that you are aware on the pros and cons of staircasing and knowing when and how to do it to your advantage. By speaking to an expert on mortgages, you can make an informed decision and work your way up to being a full home owner.

Get in touch with our team of experts here for more information about how we can help you!