Staircase mortgages are designed for those who struggle to get on the property ladder. The average price of a house in the UK continues to rise, the latest estimation by the Nationwide is that average price is over £140,000. Even with the increased willingness of mortgage lenders to lend higher income multiples many first time buyers are unable to borrow enough. For example if a first time buyer had an income of £25,000 then a first time buyer on an income multiple of 4 would be able to borrow £100,000 this is some £40,000 short on the average house price. As a % it is 70% of the house. However this is where staircase mortgages can prove useful.
Under certain schemes a buyer is able to buy between 50-75% of the house. The remaining 50-25% is bought by a housing association. The buyer then pays back the standard mortgage interest payments plus a small rent to the housing association. After a certain while the buyer can make additional payments to enable him to buy off the amount owned by the housing association. This means that you begin to own an increasing % of the house
However these schemes are usually limited in their number. In the UK they have been reserved for key public sector workers like teachers, nurses and policemen.
Advantages of Staircase Mortgages
- It helps first time buyers to get on the property ladder
- It avoids “wasting” rent money on giving money to landlord. Paying towards a mortgage is an investment for the future.
- It avoids having to get more expensive mortgage schemes like interest only or self certification mortgages.
- Some flexibility in when you increase the % of the house that you own.
Disadvantages of Staircase mortgages.
- Limited in scope. Not available for everyone.
- Involves paying mortgage plus extra rent.
- Some extra costs involved
Overall they are a good scheme if you are lucky enough to be able to get one. Certainly better than renting.