Valuation is a double-edged sword. You will probably want a higher valuation if you are selling, but a lower valuation if you are staircasing. However, a RICS valuer will work to the same standard procedure regardless of the reason you need a valuation.
You might want to do some research around the likely outcome before you invest your hard-earned cash in a RICS valuation. This should help with your financial planning. It might also avoid paying a fee potentially just to discover you can’t afford to staircase right now.
If you are affected by building safety issues – and need a mortgage – you may want to check with your current lender, or an independent financial advisor, that you will be able to borrow funds for staircasing before proceeding down the valuation route.
3 top things you should know
- The cost of staircasing is based on the ‘current market value’ of your home.
- Property valuation is complex and there is, inevitably, a need for judgement in collecting and assessing evidence. Consequently, you may be able to challenge a RICS valuation you don’t agree with.
- The valuation process is different for 1% incremental staircasing under the new Shared Ownership model.
New-builds, resales and current market value
Shared Ownership is sometimes described as ‘paying in instalments’. But this is not really an accurate description. In a typical instalment payment plan, the total cost is agreed in advance and divided up into a number of separate payments. However, when it comes to Shared Ownership, staircasing is based on the ‘current market value’ and not the total value of your home when you bought your initial share.
The Government’s Capital Funding Guide says: ‘Providers must obtain valuations from a Royal Institution for Chartered Surveyors (RICS) qualified and registered valuer at the point of initial sale of a Shared Ownership home.’ The Guide does not require that providers must sell new-build homes at the RICS valuation, simply that they must obtain one. In practice, a RICS valuation establishes the minimum sales price, but the actual sales price may be higher.
However, all subsequent transactions – including resales and staircasing – are at the value established by a RICS valuation.
Will staircasing cost more or less than my initial share?
It’s hard to say. Whether property prices are rising or falling is probably the most significant factor. Typically, property prices tend to rise. But if you purchased a new-build home, paying a new-build premium, the value might actually decrease in the short-term.
How do RICS valuers value Shared Ownership homes for staircasing?
RICS valuers work to a standard procedure published by their governing body. This requires them to assess ‘market value’. And, helpfully, RICS publish a definition of market value:
‘The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion’.
What does this actually mean in Plain English? Let’s go through it step by step.
Estimated amount – An estimate relates to something that is not certain; here the sales price you might obtain for your home. RICS valuers aim to be as objective as possible, but they don’t have a crystal ball!
Asset or liability – An asset is something with value, and a liability is usually something that someone owes. So your home would count as an asset. (Your mortgage, on the other hand, would count as a liability, as you have to pay back the cash you’ve borrowed from your lender).
Arms length transaction – This is a deal where both parties act independently and in their own self-interest. In your staircasing transaction, the parties are you and your landlord. The RICS valuer will look at other ‘arms length transactions’ to gather evidence; for example, recent sales of similar properties.
Can I challenge a staircasing valuation I don’t agree with?
In theory, yes, though it might be difficult in practice. Property valuation is complex, so any reputable firm should be prepared to consider additional evidence and review their estimate accordingly. The following checklist is not definitive, but it might be helpful in assessing your valuation.
Asking prices – Research asking prices of local for sale properties taking into account price per square foot, location and condition. Bear in mind that asking prices could be different to the amount properties actually sell for. So they are indicative, but have limited use as evidence.
Recent sales – Perhaps a local property similar to yours just sold for a lower price than your valuation? You can check sold prices on portals such as Rightmove. It can take a while for sold prices to be published online, so you might also talk to local estate agents about the prices similar houses or flats are currently selling for.
Lease length – If the number of years remaining on your lease is now under, or just above 80, this will affect the value of your home. Some valuers don’t take account of lease length until there are fewer than 80 years remaining. Others recognise that mortgage lenders may be reluctant to lend well before the 80-year threshold. If you’ve got, say, 81-85 years remaining on your lease, it may be worth checking the assumptions the valuer has used.
Staircasing caps – Whether or not to take a staircasing cap into account is a matter of judgement. In some areas an 80% cap might not deter potential homebuyers. On the other hand, buyers who can afford 80% may prefer an open market purchase. So, in some cases, a staircasing cap could reduce the valuation compared to properties without a cap.
Local connections criteria – The same applies to any local connections criteria for resale.
Improvements – Changes to your home can increase (or decrease) its value. Any approved improvements you have made should be disregarded for the purposes of your staircasing valuation.
Building safety – Building safety issues increase uncertainty and risk in estimating value. If applicable ask the valuer to take into account any relevant new information, such as an estimate or a bill for remedial works.
The standard model and the new model
The new model for Shared Ownership allows shared owners to increase their share annually in 1% steps. Incremental staircasing uses a different approach than the RICS valuations discussed in this article, it used a House Price Index valuation.
Don’t take our word for it!
As we’ve discussed, property valuation is complex. Please do take professional advice as applicable.