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What Is Staircasing And How Does It Work?
Staircasing is a common term that you will probably come across most frequently if you have purchased a share of a Shared Ownership property.
A shared ownership property is one whereby the buyer, who must meet certain criteria, will purchase a share of the property, rather than the whole thing. Normally, you will buy between 25% and 75%, and then pay rent on the value of the remaining share of the property that you do not own.
The Government scheme currently has the following eligibility criteria:
Your household must earn £80,000 per year, or less. This threshold is £90,000 per year or less in London. You must also be either a) a first-time buyer, b) previously a home owner however you can no longer afford to buy one, or c) you are already a shared owner.
Shared ownerships properties are always leasehold. Even though the property may be advertised as freehold when you initially decide to purchase it, the Housing Association will be granting you a lease, which ultimately means that, unless you staircase to the full 100% ownership, you will not be able to buy the freehold. Our Property Conveyancing Solicitors have discussed Leasehold properties previously, here.
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Can I buy more shares of a Shared Ownership Property?
Yes, this term is known as staircasing. This is when you already own a share of a property, and you purchase more.
A common misconception is that your new share will be the same price as the original shares were sold for. For example, if you purchase 25% for £100,000, your new share of 25% will also be £100,000. However, this will not necessarily be the case. If property prices have increased, your new share may be more expensive. This works the other way, too; if property prices have dropped, your new share could be cheaper.
When you decide to purchase more of the property you will need to have to property valued (ensure you check the Valuation Criteria with the Housing Association first) then send the valuation to the Housing Association. Only at this point will the Housing Association let you have an idea of the costs associated with purchasing a further share and the cost of the additional percentage of the property that you wish to purchase.
Do I have to wait before buying more shares?
In some shared ownership leases, you will need to own the property for so many years before you can staircase.
The terms of the ability to staircase will be set out in the lease, which your Property Conveyancing Solicitors will review before you purchase the property. If you have any specific questions about whether you will be allowed to staircase, you should raise these before your Exchange Contracts, which is the point when you are legally committing to your purchase. Our team have discussed Exchanging Contracts and Completion, here.
Can I sell a shared ownership property?
When you buy a Shared Ownership property, you are not committing to buy it for life. If you decide that you want to sell your property, there is usually a condition attached when you purchase it that states that the housing association who own the other shares have a right to buy it first (also called “first refusal”. They also have a right to find a suitable buyer for your home. If you own your full property, through staircasing, you will be able to sell it to whoever you want, without offering the housing association first refusal.
How to I work out whether I can afford to purchase more of my shared ownership property?
Well, if you are considering purchasing a further share in your property, the best place to start would always be with your mortgage provider, a mortgage broker, or a financial advisor. They should be able to tell you whether you have enough money to purchase an additional share, or get the assistance of a further mortgage.
If you want to make some enquiries yourself before discussing it with anyone else, sharetobuy.com have a useful staircasing calculator, which you can find here.
Get legal advice
If you are staircasing with your shared ownership property, you should always seek the assistance of a qualified Property Conveyancing Solicitor to assist with your purchase. You can contact our expert team online, here, or email email@example.com with your name and contact number for a call back within one working hour.
What are the benefits of staircasing?
Well, as our Property Conveyancing Solicitors have explained above, if you own a shared ownership property, you will normally pay rent on the portion that you do not own. For example, if you own 50% of a house worth £200,000, you will pay rent on the £100,000 that you do not own. This is usually paid to the housing association who owns the other share.
Therefore, the more of the property that you own, the less rent that you will pay on the remaining share. Once you own 100%, you will no longer need to pay any rent on the property. Obviously, if you purchase the additional shares with the assistance of a mortgage, you will need to pay this until the term has finished and it has all been paid off.
Will I need to pay Stamp Duty on the property?
When you buy a Shared Ownership property, there are two options for payment of Stamp Duty. If you are buying a share of the property which is worth less than the current Stamp Duty threshold, you can choose just to pay the Stamp Duty Land Tax on your share at the time of purchase (i.e. nothing). If you then staircase, you will pay Stamp Duty Land tax on the accumulated value of the percentage of the property that you own.
For example, basing these off normal Stamp Duty rules (not the new COVID rules, which you can read about, here), if you purchase a 25% share of the property for £100,000, there would be no Stamp Duty to pay. If you then decide to purchase another 25% of the property 5 years later, this value may have gone up, and you therefore pay £125,000. Now, you own 50% of the property and you have paid £225,000. As you have paid over the Stamp Duty threshold of £125,000, you will pay Stamp Duty on the £100,000 difference.
An alternative way that you may wish to look at, is paying all of the Stamp Duty for the whole property up front. For example, if the total value of your property is £400,000, even if you are only buying a 25% share, you could pay the full Stamp Duty due on £400,000 upfront. This way, even if you decide to staircase in the future, you won’t need to pay any more Stamp Duty.
You might think that the choice is a no brainer, however, our Property Conveyancing Solicitors would explain that if you do not pay Stamp Duty upfront and the property value increases in the future when your decide to staircase, you may pay more Stamp Duty than you would by paying it upfront. Also, Stamp Duty rules could change at any time, and therefore the rates payable could increase in the future.
It’s therefore important to weigh up whether or you think it’s worth paying for your Stamp Duty up front, or taking a risk with waiting until your staircase.