23/03/2023
When you buy a home through Shared Ownership, you can increase how much of the property you own and reduce the amount of rent you pay each month through a process called staircasing.
If you’re considering staircasing, it’s essential to know how your monthly payments may change and the costs associated with buying new shares.
Below we look at two different examples of buying shares vs the income you need and explore the different figures associated with staircasing.
How much does it cost to staircase?
One of the main benefits of the shared ownership scheme is the flexibility it gives to homeowners. You’re able to buy sizes of shares depending on your own financial situation and can move towards full ownership of your property at your own pace.
People commonly buy shares of 10 - 20%, although this isn’t mandatory and you can buy more if you feel like you’re ready. When you buy, you can also choose the deposit you put down on each share, providing even more flexibility to suit your current situation.
All of these choices change the monthly payments you can expect to see and the salary you’ll need to make it happen. With this in mind, it’s important to consider how much you can afford and what you need to go ahead with the process.
Example 1: Staircasing a property worth £205,000
Our first example examines a property with a fair market value (FMV) of £205,000. The case study is based on the following criteria:
- A service charge of £60pcm
- A rental rate of 2.75%
- An interest rate of 6.35% (for 5% shares) and 6.15% (for 10% and 15% shares)
- A buyer with no children, £1,000 debt and providing pension contributions of 5%
We’ve split our first example into two different instances to give a better idea of associated costs. In the first instance, the buyer is purchasing a 10% share worth £20,500. In the second instance, the buyer is purchasing a 20% share worth £41,000.
Within these two different-sized share purchases, we’ve also broken down the costs based on a 5%, 10% and 15% deposit.
Staircasing with a 10% Share
Here you can see just how affordable shared ownership can make the home buying process, giving purchasers the opportunity to reduce their monthly payments by putting down a larger deposit and taking advantage of below market value rent.
This first instance demonstrates how increasing the deposit you pay to 15% reduces the requisite salary by around £600 and the mortgage payments by around £14 each month. This makes homeownership much more accessible for people that may have the money to buy but can’t afford a deposit on the full amount.
Staircasing with a 20% Share
This second instance takes this further, with a higher deposit reducing the monthly payments by £29 and the requisite salary by £1,160.
Across each variable, shared ownership is often much more affordable. Firstly, the deposit is paid on the share you’re purchasing, rather than the overall FMV, which makes it much more accessible. Secondly, rent is paid below market value which can give you a much better deal in a rental market that is currently extremely expensive.
Finally, because your mortgage repayments are based on your share price, you’re able to control how much you’re paying by adjusting the size of your share.
Example 2: Staircasing a property worth £295,000
Our second example examines a property with a fair market value (FMV) of £295,000. The case study is based on the following criteria:
- A service charge of £70pcm
- A rental rate of 2.75%
- An interest rate of 6.35% (for 5% shares) and 6.15% (for 10% and 15% shares)
- A buyer with no children, £1,000 debt and providing pension contributions of 5%
As with the first example, this second example is split into two different instances of buying shares - either a 10% share worth £29,500 or a 20% worth £59,000.
Within these two different-sized share purchases, we’ve also broken down the costs based on a 5%, 10% and 15% deposit.
Staircasing with a 10% Share
Staircasing with a 20% Share
In these instances, while the rent is slightly higher on the more expensive property, shared ownership provides buyers with the opportunity to keep their mortgage repayments significantly lower.
Similarly, while the salary requirements increase to around £29,000, they remain achievable based on the average UK salary of £38,000 according to the ONS.