HOMES ENGLAND: Staircasing valuation disputes

Valuations for staircasing can result in disagreements and disputes, shining a spotlight on potential conflicts of interest between shared owners and housing providers (and the government).

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Date: 5 January 2025

To: Miranda Foster, Head of Affordable Housing Programmes and Products, Homes England

cc: Ministry of Housing, Communities & Local Government (MHCLG)

Dear Miranda,

I am writing to draw your attention to some issues arising from valuations for staircasing which, unfortunately, may militate against the promise of a pathway to full home ownership. This Open Letter includes some recommendations in this regard.

Homes England’s guidance and model leases

Homes England’s Capital Funding Guide and model leases are set up for the landlord to appoint a RICS valuer to determine the market value for staircasing.

Homes England’s Capital Funding Guide, Section 2.3.3: ‘For subsequent staircasing transactions, the provider shall follow the valuation requirements in Schedule 6 (Staircasing Provisions) of the model form of flat lease or Schedule 5 (Staircasing Provisions) of the model form of house lease’.

Homes England’s model lease (Affordable Homes Programme 2021-26), Schedule 6, 1.3: The Landlord shall apply to the Valuer to determine the Market Value as at the date of service of the Leaseholder’s notice served pursuant to paragraph ‎1.1 (upon which the price of acquisition will be based) within 14 days of receipt of the Leaseholder’s notice (or, if later, within 14 days of the Valuer’s appointment) and shall notify the Leaseholder of the amount of the Valuer’s determination in writing within seven days of receipt of the said determination.

However, at least some housing providers allow shared owners to appoint their own RICS valuer. I understand that Homes England are broadly supportive of this approach as, in theory, it allows shared owners more choice and control over the process.

Staircasing as a pathway to full home ownership

Staircasing is important for shared owners, as it is one of two pathways to full home ownership. (The other pathway is transition to full home ownership via a gain on sale of a share in an shared ownership property).

Staircasing is not always affordable. There are concerns that property prices typically outpace wage inflation, pushing staircasing out of reach for many.

“The main barrier in this respect has been the extent to which house price inflation has outstripped wage inflation. This problem could be addressed if shared owners were allowed to buy additional shares at a more affordable price. This could be the day one price, or a price linked to inflation or earnings growth.” (Matthew Bailes, Chief Executive, Paradigm Housing Group, quoted in Inside Housing)

Of course, Homes England is not responsible for policy. This is down to the Ministry of Housing, Communities and Local Government (MHCLG). However, sometimes, it is the process of applying the ‘current market value’ approach, not staircasing policy per se, which pushes staircasing out of reach.

In the event of staircasing valuation disputes, failure to prioritise shared owners’ best interests disadvantages at least some shared owners. At worst, it can undermine the promise of full home ownership.

Staircasing valuation disputes: the lease

The Capital Funding Guide refers to: ‘the lease making provision for the resolution of disagreement or dispute that may arise, between the landlord and the leaseholder, in respect of choosing a valuer’ (Section 7.2.8). However, not all shared ownership leases make provision for resolution of such disagreements or disputes. (For example, per a 2021 Housing Ombudsman report on a complaint about a staircasing valuation (Torus 62 Limited)).

Even if a lease makes provision in respect of choosing a valuer, there is no mechanism specified for mutual resolution of a disagreement or dispute about the valuation itself. However, if a housing provider has concerns about a shared owner’s RICS valuation, the lease gives them the right to appoint their own RICS valuer for a second opinion.

It is important to note that RICS state: ‘Valuation involves professional judgement and there can be a number of reasons why two valuations are different. A difference does not necessarily indicate any misconduct by either valuer‘. RICS’ accepted margin of tolerance is up to 15% for residential valuations.

Staircasing valuation disputes: the District Valuer Service

There is also an option to ask the District Valuer to determine the value of the property. However, it is likely that many shared owners are not aware of the District Valuer Service (DVS). In the absence of signposting they may not know that an independent valuation can be sought from the service in the event of a dispute.

Does selective choice of high(er) valuations undermine the promise of full home ownership?

Whose interests should be prioritised if the housing association obtains a valuation which is higher than that determined by the shared owner’s own RICS valuer? The Capital Funding Guide, and the model lease, are currently silent on this question.

Disputes are particularly problematic if the higher valuation is above the maximum amount a mortgage lender would be willing to lend.

There is also a risk of reputational damage in appearing to seek a higher valuation than that determined by a shared owner’s own RICS valuer. In this regard, it is noteworthy that Homes England previously advised MHCLG that: “Mortgage advisers can’t be referred to as “independent” because they are on a provider’s panel (and reliant on them for leads). I think the wording we landed on was suitably qualified and regulated mortgage advisers“. Presumably the same concerns around independence apply to panel RICS surveyors…..

I hope this is of interest, and look forward to your response.

Kind regards,

Sue Phillips

Founder, Shared Ownership Resources

Featured image: starline on Freepik

Shared Ownership Resources is discussing the issues raised in this Open Letter with Homes England. Watch this space for updates.

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Additional Resources

Shared Ownership Resources: Can I challenge a staircasing valuation?