You may have come across the term staircasing if you have purchased a share of a Shared Ownership property or are looking to do so. In her article, Trainee Solicitor, Katie Collis explains the process and its implications.
What is staircasing?
A shared ownership property is one where a buyer has purchased a share rather than the whole property. Normally, you would purchase between 25% and 75%, then pay rent on the value of the remaining share of the property that you do not own. Shared ownership properties are always leasehold.
For people who already own a share in a shared ownership property, staircasing is the process of purchasing further shares up to and including 100% outright ownership.
Interim staircasing is the process of buying shares up to but not reaching 100% ownership.
Final staircasing is the process of buying the final shares of the property, taking you to 100% ownership and no longer being a shared owner. If the property is a house, then you may become the freeholder. If the property is a flat you will remain a leaseholder and ground rent and service charge will still be payable, but the rent payable to the housing association as a shared ownership tenant is reduced to nil.
What are the benefits?
There is no requirement to staircase however it can bring a number of benefits.
Typically, where you own a share in a shared ownership property, you will pay rent on the share that you do not own. For instance, if you own a 50% share of a property worth £300,000.00, you will need to pay rent on £150,000.00. Through staircasing, you will be increasing the amount of the property you own and decreasing the amount of the property that you have to pay rent on, therefore making a saving in rent.
If you reach 100% ownership of the property then there will be no tenancy rent payable. However, be aware that if you purchase the additional shares using a mortgage lender, you will have to pay your mortgage payments until the balance has been paid off.
Are the shares always the same price?
A common misconception is that your new share will be the same price as the original shares you purchased. However, this will not always be the case. Depending on the market value of the property the share could have increased or decreased in price.
How does staircasing affect my mortgage?
Unless you can afford to pay for the further shares from savings, staircasing will normally involve either taking a further advance from your current mortgage lender or a taking out a new mortgage to cover both your existing share and the new shares from another lender. A change to your mortgage product may result in you having to pay a higher rate of interest which will increase the overall cost of your borrowing.
What costs are involved?
As with any conveyancing transaction, when you purchase more shares in your home, you can also expect to incur additional costs, some of which might include:
- Housing Association valuation fees. These will be incurred as the Housing Association will need to value to the property before they provide their final offer to you for the share price you have requested to purchase
- Housing Association administration fees
- Legal fees
- Mortgage arrangement fees, should you need to remortgage in order to purchase the additional shares
- Stamp Duty Land Tax, dependent on your level of ownership in your property.
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How can a solicitor help?
Once you have decided on the share you would like to buy and have received confirmation from the Housing Association that you are eligible to buy the shares that you want, you will need to appoint a solicitor to act for you.
The Housing Association will carry out their own valuation of the property before providing you with an offer for the shares you would like to buy. Your solicitor will be able to guide you through the conveyance process of staircasing and will also be able to act for you in any remortgage you need to fund the purchase.
It is important that you seek expert legal advice when looking to staircase because this will ensure you are going through all of the processes correctly and in the most efficient way. You will also need to instruct a solicitor because the increase in your share will lead to changes to your existing lease.
The Shared Ownership Scheme gives many people the opportunity to get onto the property ladder by buying a share of a property at a price they can afford. Staircasing then allows people the chance to increase their shares at a pace that suits them. However, leases should be checked carefully before entering the transaction to establish whether staircasing will be possible and to be aware of any limitations that might limit the route to full ownership.
For further information on staircasing or buying and selling property, contact a member of our Residential Property team.
Girlings has offices in Ashford, Canterbury and Herne Bay.