Shared Ownership Mortgages

The Basics of Staircasing

One of the main selling points of a shared ownership scheme is that it is possible, in time, for the owner to purchase more shares as they amass sufficient financing, eventually gaining total ownership of the property. This process of purchasing more shares is known as 'staircasing' and is normally dealt with in the terms of the lease.

Process of Staircasing
As the actual process of buying the additional shares is dealt with as a term of the lease, it can be individually negotiated and may, therefore, vary between different properties. Generally, however, the lease will allow the owner to purchase further 10 percent segments, at regular intervals, (but not normally within the first 12 months of ownership).

As the share of the property that you own increases, the rental payments due under the lease will also reduce and will necessitate an amendment to the lease and, therefore the permission of the landlord.

Once you have notified your landlord that you wish to purchase a further share of your property, they will then have the property independently valued and inform you of the exact cost of this additional share. The valuation will have to be paid for by yourself and you will then be given a three month period to raise the necessary finance to purchase the share.

Implications of Staircasing
Many shared ownership landlords will not allow a tenant to staircase to the full 100 percent value. This is a restriction that you should look into before you purchase the property, if ultimate ownership is your aim. Some landlords also require that the staircasing is carried out in larger tranches of 20 to 25 percent which will, of course, have an impact on the amount of cash that has to be raised. Make sure you are clear about these sorts of restrictions, before the initial purchase, to prevent any shocks at a later date.

Also consider the effect on your mortgage. If you have an interest only loan you will now have to find a larger chunk of capital at the end of the term. Also, if you take out a further mortgage for the same length of time as the original mortgage, the end dates will now differ. This, in turn, may cause complications for your budgeting. In this situation, it is worth considering setting the second and subsequent mortgages to coincide with the end date of the initial mortgage.

Summary
Purchasing further shares in a shared ownership property allows an owner to work gradually towards owning their property outright;
the restrictions and rules governing this process are contained in the lease and should be considered before the initial purchase;
there may be ongoing implications regarding the mortgage on your property which need to be considered, such as the end date or extent of capital repayments required.