The Benefits of Staircasing

YoungGentry

Hi MSE peeps,

So I am now in a position to increase the size of my share from 35% to the full 100%.

After running amortisation calculation, retained capital is about the same ~62%(35% + Overpayments to equal monthly payments of 100%) vs ~63%(100%), this prompted the question of whether staircasing provides something other than flexibility. I plan to sell in about 2 years and move more central in London.

The benefits I see:

1. No HA rent ie dead money
2. Buyer bidding
3. Selling flexibility
4. No annual changes in rent

The downsides:

1. Overpayments make a nice rainy day fund just in case
2. Greater exposure to fluctuations in house prices.

Is there anything that I have missed?

getmore4less

How much is the rent?
How much to rent the money?

Costs to staircase.

YoungGentry

Cost to staircase is
£300 + Vat for Surveyor
£400-600 + Vat for Solicitors


Why does the rent in isolation matter? Retained capital is far more important.

getmore4less

Because you are borrowing the money you are capital neutral.

You need to work out the difference in cost of paying rent or paying rent on the money.

even if they were the same you would be best part of £1k down day one.

You need to recover that from interest on the mortgage being less than the net rent(after getting some interest on the savings).

you only have 2 years to do that.

then you are dependent on HPI for any other change in capital.

YoungGentry

getmore4less wrote: »

Because you are borrowing the money you are capital neutral.

You need to work out the difference in cost of paying rent or paying rent on the money.

even if they were the same you would be best part of £1k down day one.

You need to recover that from interest on the mortgage being less than the net rent(after getting some interest on the savings).

you only have 2 years to do that.

then you are dependent on HPI for any other change in capital.

I am looking at it from a future value perspective. How much of my capital expenditure of house (mortgage + interest + rent) is retained in each scenario is retain in the principle payments i.e what isn't 'dead' money. 35% OWMS plus my current over-payment equaled 100%. 35% OWMS by itself was actually 40% retained.



The question was effectively does the benefit of owning 100% out weigh the 900 quid. Keen to hear your thoughts?

getmore4less

Keen to hear your thoughts

You are not answer in the questions.

I did forget one thing, you need the cost to rent the money of both levels of borrowing if the rate changes due to higher LTV

YoungGentry

Sorry, i am speaking in accountancy terms.

Amortisation shows the reduction in debt over a period of time, as part of the calculation i have to know the cost of paying rent, and the cost of renting the money.

In this case i took the potential ltv mortgage payment figure and interest given to me by my bank.


It is cost even at a level i am already paying hence why an not mentioning numbers. (Cost of staircasing not factored in)