Over the years, the shared ownership market has enabled first time buyers, low income families and previous house owners to get on the housing market with a lower deposit. Shared ownership in the simplest form is part owning a home (leaseholder) with your housing association (landlord) and paying them rent for the share you do not own.
Buying a home is a great investment for the future because it gives a sense of security, fulfilment and you do not have to worry about your landlord or estate agent intruding every three months to check if you have not broken their bed!
In my experience, a majority of part owners of shared ownership property eventually want to own their property outright. To be able to purchase further shares in your shared ownership property, you will have to go through the process of staircasing (purchasing further shares). However, with rising house prices and the fact that we are all spending our money on essential living means that staircasing requires discipline and motivation to achieve.
We are experienced, cost-effective and happy to help you with the staircasing process.
THE STAIRCASING PROCESS
· To be able to purchase further shares, a valuation needs to be undertaken by a RICS surveyor to determine the market value of the property. The share you are looking to acquire is calculated based on the full market value. For example, if the full market value is £200,000 and you are looking to purchase an extra 40% share, it will cost £80,000 to purchase the 40% share. The cost of the valuation is around £250 and will be payable by you.
· You have three months from the date of the valuation to complete the purchase of the 40% share. If you fail to purchase the 40% share within the three-month period, the valuation can be, at the discretion of the housing association, extended by a further three months without any cost to you. If they do not extend, you will be responsible to pay for another valuation.
· In the same manner as you will be responsible for legal fees and lender fees, the housing association will be responsible for their own legal fees every time you decide to staircase. The housing association will also responsible for administrative costs such as leaseholder enquiries, documentation and changes to the rent and service charge log.
POTENTIAL ISSUES FOR LEASEHOLDERS AND HOUSING ASSOCIATIONS
A major concern for housing associations is that if the lease does not stipulate a time limit for staircasing, they could incur significant legal and administrative costs over a short period of time.
In view of the government’s recent proposals to simplify staircasing and allow leaseholders to staircase by a minimum of a 1% share instead of the current minimum of 10%, the legal and administrative cost to be borne by the housing associations may be unattractive. Although, this will have to be balanced with the housing association being able to reduce its potential rental and management liabilities.
From a leaseholder’s point of view, being able to staircase for as little as a 1% share means you might be able to afford it without recourse to additional lending. Although, this will have to be balanced with the legal and administrative costs of staircasing.
· If you are a first time buyer purchasing a property with a full market value up to £300,000, it is important to elect to pay stamp duty on the full market value of the property as you would not need to worry about paying stamp duty when you staircase up to 100% in the future.
· If the full market value of the property is over £300,000, the best option is to elect to pay on the share (premium) you are purchasing. This means you will only have to worry about stamp duty when you decide to staircase over 80%.
WE ARE HERE TO HELP
We would behappy to talk you through the potential costs of staircasing (including any liability to stamp duty) and deal with any other queries without obligation.
For further information, please do not hesitate to contact Bernard Arhin, Conveyancing Executive at Lawcomm Solicitors on 01489864125 or by email Bernard.Arhin@lawcomm.co.uk
The above article does not constitute legal advice.