Staircasing with Bad Credit

You've been living in your shared ownership home, making every payment on time, and now you want to buy a bigger share. But there's a complication — your credit history isn't clean. Maybe it was messy before you got your shared ownership property, or maybe something's gone wrong since. Either way, you're wondering whether staircasing is still possible.

What Is Staircasing?

Staircasing is the process of buying additional shares in your shared ownership property. If you currently own 40% and want to buy another 20%, that's a staircasing transaction. Each time you staircase, you:

1. Get a valuation of the property at current market value
2. Pay the housing association for the additional share at that valuation
3. Your rent reduces proportionally (since you own more)
4. You may need to remortgage to fund the additional purchase

When you reach 100% ownership, you own the property outright and stop paying rent to the housing association entirely.

How Bad Credit Complicates Things

Staircasing usually requires a remortgage — you're increasing the amount you owe on the property. This means your lender (or a new lender) needs to assess your creditworthiness again. If your credit has deteriorated since you first got your mortgage, this is where problems arise.

Your Current Lender May Say No

If you're asking your existing lender to extend additional borrowing, they'll run fresh credit checks. If they find:

• Late payments on credit commitments
• Defaults registered in the last few years
• CCJs (County Court Judgements)
• High levels of existing debt

...they may decline the additional borrowing. This doesn't mean you lose your home or your current mortgage — it just means they won't lend you more.

A New Lender Means a Full Application

If your current lender won't help, you'll need to remortgage with a different lender to fund the staircasing. This means a complete new mortgage application with full credit checks, affordability assessment, and property valuation.

What Lenders Look At

When assessing a staircasing application with adverse credit, lenders focus on:

Your Mortgage Payment History

This is crucial. If you've been paying your existing mortgage on time without fail, that demonstrates reliability regardless of what else is on your credit file. Lenders view a clean mortgage payment record very favourably.

The Age of Your Credit Issues

A default from five years ago is viewed very differently from one registered last month. Most adverse credit marks fall off your credit file after six years, and their impact diminishes over time. If your issues are older and you've been clean since, your options are much better.

Your Current Financial Position

Lenders want to see that whatever caused your credit problems is resolved. If you had debt problems but have since cleared them and are managing your finances well, that's a positive story.

The New Loan-to-Value Ratio

After staircasing, what's your mortgage as a percentage of your total share? If your property has increased in value, your LTV may actually be lower than when you first bought — which works in your favour.

Which Lenders Help?

Building Societies

Some building societies are more flexible with adverse credit on staircasing applications. Leeds Building Society, Skipton Building Society, and Bath Building Society are among those known for manual underwriting, where a human reviews your case rather than an automated system.

Specialist Lenders

Lenders like Kensington Mortgages, Pepper Money, and Bluestone operate in the adverse credit space and some offer shared ownership remortgages. Rates will be higher than mainstream, but they exist for exactly this situation.

Your Existing Lender

Don't dismiss your current lender. Some have internal policies that are more lenient for existing customers looking to staircase versus new applicants. It's always worth asking first.

The Costs of Staircasing

Whether or not you have bad credit, staircasing comes with costs:

• Valuation fee — £200-£500, required to determine the current market value
• Legal fees — £500-£1,500 for a solicitor to handle the transaction
• Mortgage arrangement fee — if you're remortgaging, this could be £500-£2,000
• Early repayment charges — potentially thousands if you're leaving a deal early
• Stamp duty — may apply depending on the total value and your share

With bad credit, you may also face higher interest rates, which means your monthly payments could increase even though your rent decreases.

Is It Worth Staircasing with Bad Credit?

This depends on the numbers. Staircasing makes financial sense when:

• The reduction in rent outweighs any increase in mortgage payments
• You're building equity in a property that's likely to hold or increase its value
• You want to eventually own outright and stop paying rent entirely
• The higher interest rate is temporary — you can remortgage to a better deal once your credit improves

It might not make sense if:

• The higher interest rate means your total costs (mortgage plus reduced rent) are higher than what you're paying now
• Your credit issues are very recent and you'd get much better terms by waiting a year or two
• The property has fallen in value, meaning you'd be paying more per share than it's worth

An Alternative: Wait and Improve

Sometimes the best staircasing strategy is patience. If your credit issues are relatively recent:

1. Continue paying your current mortgage on time — this builds a positive track record
2. Work on clearing any outstanding debts — pay down defaults if possible and check your credit score
3. Let time heal your credit file — most marks fall off after six years
4. Save for a larger deposit towards the additional share — a bigger contribution means less borrowing

In 12-24 months, your options could be significantly better, with lower rates and more lender choice.

Worked Example: Staircasing with a Satisfied Default

Ben currently owns a 30% share of a property originally valued at £220,000 (his share was £66,000). He has a mortgage of £60,000. The property is now valued at £250,000, and he wants to buy an additional 20% share.

Ben's credit issue: A satisfied default of £1,200 from 3 years ago (a disputed mobile phone contract that went to default before being resolved).

The staircasing calculation:

• Additional share: 20% of £250,000 = £50,000
• New total mortgage needed: approximately £105,000 (current balance of £55,000 + £50,000 for new share)
• New total share: 50% of £250,000 = £125,000
• New LTV on his share: £105,000 / £125,000 = 84%

His current lender (Halifax): Declines the additional borrowing due to the default within the last 6 years. Halifax's automated system flags it.

Specialist lender option (Kensington):

• Accepts satisfied defaults over 2 years old
• Offers a rate of approximately 5.9% (compared to the 4.5% Ben was paying on his original mortgage)
• Approves the remortgage

The financial impact:

Ben's total cost increases by £139/month, but he now owns 50% of the property instead of 30%. His equity position is stronger, and once the default drops off his credit file (in 3 more years), he can remortgage to a mainstream rate, reducing his monthly payment significantly.

Is it worth it? In Ben's case, yes — he's building equity faster, his rent reduces, and the higher rate is temporary. But if his default were only 1 year old, waiting would likely make more sense financially.

Worked Example: When Waiting Is Better

Rachel owns a 25% share of a flat valued at £200,000. She has a CCJ of £2,500 registered 18 months ago (now satisfied). She wants to staircase to 50%.

Current situation:

• Mortgage: £47,000 on her 25% share (£50,000)
• Additional borrowing needed: 25% of £200,000 = £50,000
• Total new mortgage: approximately £95,000

The problem:

• With a CCJ only 18 months old, specialist lender rates would be approximately 7-8%
• Her monthly mortgage payment would jump from £280 to approximately £700
• Her rent would drop from £344 to approximately £229
• Net increase: approximately £205/month at a very high rate

If she waits 18 months:

• The CCJ will be 3 years old — unlocking significantly more lender options
• Expected rate with a 3-year-old CCJ: approximately 5.5-6%
• Monthly payment on the same borrowing: approximately £570
• Saving of approximately £130/month compared to acting now

Rachel's broker's advice: Wait. Use the 18 months to save additional funds, let the CCJ age, and potentially staircase at a much better rate. The rent she continues to pay during the wait is less costly than the interest rate premium she'd pay by acting now.

Specific Lender Criteria for Staircasing with Bad Credit

Leeds Building Society

• Accepts shared ownership remortgages
• Manual underwriting — a human reviews your case
• Will consider defaults and CCJs on a case-by-case basis
• Generally more sympathetic to applicants with explanations for credit issues
• Typical rate: 0.5-1.5% above their standard shared ownership rates

Kensington Mortgages

• Explicit adverse credit criteria for shared ownership
• Satisfied defaults over 12 months: considered
• CCJs up to £5,000 satisfied over 12 months: considered
• Missed mortgage payments: up to 1 in the last 12 months may be accepted
• Rate: tiered based on severity of credit issues

Pepper Money

• Near-prime and adverse credit shared ownership products
• Categorises applicants into tiers based on credit severity
• Tier 1 (minor issues): rates close to mainstream
• Tier 2 (moderate issues): 1-2% premium
• Tier 3 (more serious issues): 2-3%+ premium

Skipton Building Society

• Shared ownership expertise
• Some flexibility on adverse credit for existing shared owners with clean mortgage payment records
• Particularly good for applicants who had credit issues before the shared ownership purchase but have been clean since

Common Mistakes When Staircasing with Bad Credit

Not Checking Your Credit File First

Before approaching lenders, check your credit report with all three agencies (Experian, Equifax, TransUnion). You may find errors that can be corrected, old debts that have dropped off, or issues you'd forgotten about. Knowing exactly what's on your file lets you and your broker target the right lenders.

Ignoring the Total Cost of Staircasing

The additional share price is just the start. Factor in:

• Valuation fee: £200-£500
• Solicitor's fees: £500-£1,500
• Mortgage arrangement fee: £500-£2,000 (specialist lenders often charge higher fees)
• Early repayment charge on your existing mortgage: potentially thousands

If the total cost of staircasing is £4,000-£5,000, make sure the financial benefit justifies the expense.

Staircasing to Avoid an Interest Rate Rise

If your fixed rate is ending and you're worried about higher payments, staircasing at the same time adds complexity. Deal with the remortgage first, then plan staircasing as a separate step — unless a broker confirms both can be handled efficiently together.

Not Considering Whether to Staircase at All

One option to consider is simply remortgaging your existing share (without staircasing) and focusing on getting the best rate for your current borrowing level. Staircasing with bad credit means a higher rate on a larger balance, which can be more expensive overall than staying at your current share and waiting for your credit to improve.

Questions to Ask Your Broker About Staircasing with Bad Credit

1. "Given my specific credit issues, which lenders will consider me?" — Name the exact defaults, CCJs, or missed payments so the broker can match you precisely.
2. "Is my clean mortgage payment history enough to offset my credit issues?" — For many lenders, a perfect mortgage record is the most important factor.
3. "Should I staircase now or wait for my credit file to improve?" — A good broker will run the numbers both ways.
4. "Can my current lender offer a further advance rather than a full remortgage?" — A further advance may involve less stringent credit checks.
5. "What's the total cost of staircasing including all fees?" — Make sure the broker includes arrangement fees, legal fees, valuation costs, and any ERCs.
6. "Would I be better off remortgaging without staircasing and waiting to staircase later?" — Sometimes separating the two decisions is financially smarter.

Getting Help

A specialist mortgage broker is almost essential for staircasing with bad credit. They'll know which lenders are currently accepting shared ownership remortgages with adverse credit, what rates to expect, and whether it makes financial sense for your specific situation. Many brokers offer a free initial consultation, so there's no cost in exploring your options.

This is educational content, not financial advice. Your situation is unique — speak to a qualified mortgage broker before making any decisions.