Shared ownership can be a good way for people to buy a home who otherwise couldn’t afford to as it allows you to buy a percentage of a property and pay rent on the remainder. This means you can get on the property ladder for less and pay a reduced rate of rent compared to standard renting. Typically, you can buy anywhere from 25-75% of a property through shared ownership.
Another key advantage of shared ownership deals is that they usually allow you to “staircase”. This means that over time you can increase the percentage of the property you own.
As you do this, the percentage owned by the housing association or private developer you purchased the property from will decrease, meaning the amount you have to pay in rent will also go down.
If you are thinking about buying a shared ownership property, there are some key things you should know about staircasing.
Please note that the information provided in this blog is provided in a generic way. Staircasing will vary from property to property. In all cases, the provisions of the actual lease should be checked, as they will always prevail.
What is shared ownership staircasing?
After you have lived in a shared ownership property for a certain period of time, you will have the opportunity to purchase further shares in the property. This means that you will effectively own a larger percentage of your home. Where you continue to purchase shares on your home via shared ownership, you will eventually be able to move all the way up to 100% ownership.
When you purchase more shares in a property through staircasing, you will also pay less rent to the landlord on the rest of the property. This is because the amount of rent you pay is based on the share of the property you do not own.
How does staircasing in shared ownership work?
There are two main staircasing methods in shared ownership. These are:
- Gradual staircasing – Buying shares of 1% each year
- Standard staircasing – Buying shares of 5% or more
With gradual staircasing, you can buy a 1% share each year for the first 15 years of shared ownership. Your landlord does not charge an administration fee when 1% shares are purchased.
The price of the 1% share is based on the original price of your property, which is then either increased or decreased in line with the House Price Index (HPI).
A HPI valuation should be provided by your landlord at least once a year, or when you ask to buy a 1% share. You or your landlord can choose to use a Royal Institution of Chartered Surveyors (RICS) valuation instead of HPI.
You will usually be able to purchase additional shares at any time if you are increasing your stake in a shared ownership property by more than 5%. This is known as standard staircasing.
The cost of the new share depends on how much your home is worth when you want to buy the share.
Do I need to deposit to staircase?
While you will typically need a deposit to buy the first share of a shared ownership property, you will not need one to buy a larger portion at a later date. The equity that has been built up in the property will act as the deposit.
When can you start staircasing in shared ownership?
The point at which you will be able to begin staircasing will be set out in the terms of your lease. Usually this will be from one to two years.
What is the 80% staircasing restriction?
In some cases, there will be specific restrictions to the staircasing process some properties. One such example would be a staircasing ‘cap’ of 80%. This is sometimes put in place as a result of planning permission to ensure that the property is retained for local residents and is not then available as a second home.
It is therefore important to carefully review the terms of the lease for a shared ownership property, as such a limitation could have a major impact on your long-term plans.
Do I pay Stamp Duty when staircasing?
When purchasing a Shared Ownership property, you will have the choice of making a one-off Stamp Duty payment. This would be based on the total market value of the property. You can also choose to pay Shared Ownership Stamp Duty in instalments, paying what is owed on the initial share you buy and then again for any additional shares.
If you choose to make a one-off payment when you purchase your home, you won’t need to pay any staircasing Stamp Duty.
If you pay in stages, there will be no Stamp Duty charge until your share is at 80% and above. If you staircase to 80%, you will need to pay Stamp Duty on the transaction that took you above the 80% threshold and any further transactions.
What are the benefits to staircasing?
There are many potential benefits to Shared Ownership staircasing. These include:
- When purchasing more shares through Shared Ownership, your rental payments will decrease.
- It often possible to staircase up to 100% ownership of your home, in which case rent does not need to be paid.
- You will benefit more when it comes to selling your home.
- You will have a wide selection of mortgage options if you staircase up to 100% ownership.
Do I need to staircase to 100% ownership to sell my home?
No, you do not necessarily need to staircase up to 100% in order to sell your home. You will be able to sell a Shared Ownership home at any time, no matter whether you have staircased or not.
If you have not staircased to 100% ownership, you will need to contact your housing association to make them aware before an independent valuation is obtained to establish the value of the property.
If you have not staircased to 100%, your provider will have a set period of time to market your home and find a buyer. If they fail to do so in the timeframe, you will have the option of selling your home privately, or through an estate agent.
What you need to know when staircasing a shared ownership property
When looking to increases your share of the property, there are various issues you will need to take account of. This includes:
Valuation – The housing provider will need to have a surveyor confirm the current market value of the property in order to calculate the cost of the additional share you wish to buy.
Stamp duty land tax (SDLT) – You may need to pay SDLT on the additional share of the property you are buying unless you elected to pay SDLT on the full value of the property at the time you acquired the initial share.
Changing your lease – Staircasing will change the terms of your lease, so you will need a solicitor to deal with this for you.
Mortgage fees – If remortgaging to cover the cost of the additional share, you may need to pay a lender’s valuation fee, a mortgage arrangement fee and potentially a penalty fee to your current mortgage provider if changing lenders.
Other considerations when buying a shared property
While shared ownership deals can be an attractive option, there are some key points to bear in mind when looking at this type of scheme.
Additional costs – When you buy a shared ownership property, it is usually on a leasehold basis. This means you will normally have to pay a monthly service charge to the property provider as well as potentially having to contribute towards the cost of maintenance works.
Restrictions on making alterations – You may need to ask the property provider’s permission before making any structural changes to the property. In some cases, you may also need permission to redecorate.
Selling a shared ownership property – If you decide to sell, the housing provider will generally have right of first refusal, meaning you have to give them the opportunity to buy the property back from you before you sell it on the open market. This can potentially slow down the process of selling and could impact the sale price.
Get reliable conveyancing for shared ownership property
Bird & Co Solicitors is a long-established law firm offering conveyancing services for properties across England and Wales from our 3 offices in the East Midlands.
We are highly experienced in conveyancing for all types of residential property, including shared ownership property, and can guide you through everything you need to know to ensure a smooth transaction and protect your interests. Our staircasing solicitors are accredited by the Law Society’s Conveyancing Quality Scheme reflecting the high quality of our residential property services.