For many, becoming a homeowner has been made possible thanks to the government’s Help to Buy scheme. But once you’ve taken that first step onto the property ladder, what comes next? For many, the answer is ‘staircasing’—a process that allows you to gradually buy back the government’s equity share in your property after booking a help to buy valuation and understanding the value of the property. This comprehensive guide will explore everything you need to know about staircasing your Help to Buy loan.
Understanding Help to Buy and Staircasing
Help to Buy:
The Help to Buy scheme is a UK government initiative designed to help make homeownership more accessible. This is particularly beneficial for first-time buyers and those wanting to move homes but don’t have a large deposit to put down. Under this scheme, you provide a deposit of at least 5% of the property’s value, and then a mortgage covers up to 75% (or 55% in London). The government then lends you the remaining percentage (up to 20%, or 40% in London) in the form of an equity loan, which is interest-free for the first five years.
This structure allows you to become a homeowner with a smaller initial outlay than would traditionally be required. However, it does mean that the government owns a percentage of your home equal to their equity loan, which is where the concept of ‘staircasing’ becomes relevant.
Staircasing:
Staircasing, a cornerstone of the Help to Buy scheme, represents the process of incrementally buying back the government’s equity loan, thereby amplifying your ownership stake in the property. Often facilitated in increments of at least 10%, this process hinges on the current market value of your home, not its initial purchase price. This is why engaging a RICS certified surveyor for an up-to-date valuation is a crucial step when deciding to staircase your Help to Buy loan.
Progressing through staircasing decreases the government’s share in your property while boosting your own. Reaching ‘full redemption’ of your Help to Buy loan, you can ultimately own 100% of your property, a milestone that carries both a sense of accomplishment and security. However, this process should be considered with care, weighing the benefits against potential financial implications and costs. Ideally, this decision should be navigated with professional advice.
In essence, staircasing presents a significant stride towards complete homeownership. By understanding its process, implications, and financial considerations, you are well-positioned to make informed decisions that align with your fiscal objectives and aspirations of homeownership. The key lies in gaining a comprehensive insight into staircasing to help achieve your dreams with the Help to Buy scheme.
Pros of Staircasing Your Help to Buy Loan
- Increased Homeownership: The most apparent advantage of staircasing is that you gradually increase your ownership stake in your property. Over time, you can even achieve 100% ownership, removing the government’s equity share.
- Reduced Loan Size: As you staircase, you’re reducing the size of the equity loan. This means you will owe less to the government, which can be a relief.
- No Interest on Paid Share: You only pay interest on the outstanding loan after the 5-year interest-free period. If you staircase before this period ends or soon after, you can significantly reduce or even eliminate the interest payments.
- Benefit from Full Property Value Increase: If property prices rise, you stand to benefit more as you own a larger share of the property. This can be a significant advantage if you decide to sell your home in the future.
Cons of Staircasing Your Help to Buy Loan
- Upfront Costs: Staircasing involves some upfront costs. You need to pay for a RICS-certified valuation of your property, solicitor fees, and possibly an administrative fee to Target HCA. You also need to ensure you have the funds to buy the extra equity.
- Potential for Increased Mortgage Payments: If you’re using a mortgage to buy more shares in your home, your mortgage payments may increase, impacting your monthly budget.
- Property Value Fluctuations: The cost of buying more shares in your home will depend on its current market value. If property prices have risen significantly since you bought your home, staircasing could be more expensive than anticipated.
- Fees in Case of Early Redemption: If you’re planning to pay off the equity loan within the first five years, you might have to pay an early repayment charge, depending on the terms of your agreement.
Process of Staircasing Your Help to Buy Loan
Property Valuation:
In the journey of staircasing your Help to Buy loan, one pivotal component is the valuation survey. This survey plays an essential role as it provides an accurate and current market value of your property. This valuation is crucial because the cost of acquiring additional shares in your home hinges on this figure. It’s not based on the price you initially paid for your property, or an estimated guess, but rather the market value at the time of staircasing. Therefore, a reliable and comprehensive valuation survey is indispensable in accurately determining the price of extra shares, ensuring you’re making a financially sound decision when staircasing your Help to Buy loan.
At homemove we can help you with a Help to Buy Valuation. We work with surveyors that are RICS qualified and registered. As well as, being independent of any estate agent. The surveyors we work with will:
- Inspect the inside of your property
- Provide at least 3 comparable properties
- Comparables will be like-for-like in type, size and age, and within 2 miles of your property
- Provide you with a signed and dated report
- Put the report of headed paper
- Provide your report in a bespoke pdf ready to be sent to Target HCA
If you would like to book your valuation you can do it through our website here.
Cost Calculation:
After obtaining your property’s valuation, it’s time to calculate the cost of acquiring more shares. If you’re aspiring to fully own your home, ensure to include all related costs in your budget.
Mortgage Advice:
Next, you may wonder: how does this impact my mortgage? This is where tailored mortgage advice is invaluable. Engaging a mortgage advisor well-versed in the Help to Buy scheme can navigate you through possible remortgaging or extra borrowing. We have a complete guide to mortgages in our blog here if you would like more information.
Completion Process:
The final step in staircasing your Help to Buy loan involves the completion process. This entails finalising the necessary legal paperwork and transferring funds. Despite the process appearing complex, the right advice and preparation can make staircasing your Help to Buy loan a seamless journey.
Fees and Costs Associated with Staircasing
Valuation Fees:
When staircasing your Help to Buy loan, one key expense to account for is valuation fees. The cost of a valuation survey typically ranges from £150 to £500, depending on the value of your property and the surveyor you choose. Get a help to buy valuation quote quickly on our website.
Legal Fees:
Next on the list are legal fees. The staircasing process involves a legal transfer of ownership. For this, you’ll need the services of a solicitor, which constitutes an additional cost. Solicitors’ fees for the staircasing process can range from around £500 to £1,500. These fees can vary based on the complexity of your case and the rates of the solicitor you hire.
Stamp Duty:
Lastly, don’t overlook stamp duty. Depending on the value of the shares you’re acquiring and your individual circumstances, you might need to pay this tax. Being aware of these costs from the outset aids in a smooth and financially sound staircasing of your Help to Buy loan. Stamp duty is a tax on property purchases and is calculated as a percentage of the purchase price. The rate varies depending on the value of the property and whether you have any other properties. If you would like to read more about stamp duty we cover everything you need to know in our blog here.
Mortgage Considerations
Staircasing your Help to Buy loan can have important implications for your mortgage. As you buy additional shares in your property and reduce the percentage owned by the government, you may find that your mortgage payments increase, depending on your lender and the terms of your mortgage agreement. This is because you may need to borrow more from your lender to purchase the extra shares. Moreover, staircasing might necessitate remortgaging, particularly if you’re aiming to own your property outright. It’s important to note that remortgaging can come with its own set of costs, such as arrangement fees and potentially valuation and legal fees. Therefore, understanding your mortgage terms, and the potential impact of staircasing on these, is a crucial step in making an informed decision about staircasing your Help to Buy loan. We cover in this blog here the cost of moving home including mortgage fees.
Conclusion
As we conclude our comprehensive guide to staircasing your Help to Buy loan, remember that careful planning and understanding are key to successfully navigating this process. Always make sure to get an up-to-date valuation of your property by a RICS certified surveyor, as the cost of staircasing is based on the current market value. Understand that staircasing involves significant financial commitments and should be undertaken only after careful budgeting. Always balance the benefits of increased homeownership against the potential costs. It’s advisable to seek professional advice to help navigate the intricacies of the staircasing process. Lastly, keep in mind that staircasing isn’t a one-size-fits-all solution. It’s a personal decision that should align with your financial goals and homeownership dreams. Equipped with the right knowledge and support, you can effectively use staircasing as a tool towards achieving complete ownership of your home through the Help to Buy scheme.
