A Shared Ownership Property is one whereby the purchaser, who must meet certain criteria, purchases a share in the property as opposed to the whole. The share purchased is usually between 25% and 75% and the purchaser will then pay rent on the remaining share which continues to be owned by the Housing Association. It is possible to buy shares as low as 10% though.
You should note that whilst a property may be classed as freehold, a Shared Ownership Property will always be leasehold as the Housing Association is granting a Lease to you. If you do not go on to staircase to 100%, you will not be able to go on to purchase the freehold and will therefore not own your property outright.
If you are the owner of a shared ownership property, depending on the terms of your Lease you may be entitled to purchase further shares from the Housing Association that owns the remaining share. This is known as staircasing. By staircasing (purchasing further shares or tranches) this means that you will own a greater share in your property thereby paying less rent on the remaining share. If you go on to staircase to 100% you will own the property outright therefore no longer paying rent to the Housing Association. Where the property is a house, you will likely also receive the freehold ownership.
Interim Staircasing is where an owner can purchase a further share or tranche, from the Housing Association (but not up to the full 100%). For instance, you may own a 25% share and purchase a further tranche up to 50%. You would then own a 50% share in the property and pay rent on the remaining 50% owned by the Housing Association. It stands to reason, the greater the share you own the better, as you will pay less rent on the remaining share.
If at some point in the future you wished to sell your shared ownership property, you would need to check the provisions of the Lease as there are usually conditions attached in this regard. These may include either having to give the Housing Association a right to buy or ‘first refusal’. They also include a clause whereby they have the right (within a set period of time) to find a suitable buyer. Only once that time has expired and no buyer is found, are you then able to market the property with a high street estate agent.
Final Staircasing is where an owner purchases the final shares left in the property up to full 100% ownership. As a 100% owner, there are various benefits. Firstly, if the property is a house you would no longer pay any rent and the freehold can be transferred to you. If the property is a flat, you would still be obligated to pay any service charges due under the Lease but the “Specified Rent” due to the Housing Association would be reduced to nil. Also, certain terms within the Lease would be removed so that it was no longer a Shared Ownership Lease. Secondly, as an outright owner, if you wished to sell the property, you would no longer have to give the Housing Association the opportunity of first refusal or finding an eligible buyer, meaning you could sell on the open market to whomever you wished.
In order to staircase whether a further share or up to the full 100%, you will need to have the property valued in order to establish the current market value. The price payable for the share you wish to purchase is based on this.
You should check the valuation criteria with the Housing Association first. Once the property has been valued, the valuation must then be forwarded to the Housing Association. They will then inform you as to how much the additional share you wish to purchase is going to cost, together with the associated costs involved in doing so.
Given the fluctuation in the housing market, it may well be that the new share you wish to purchase is either more or less than the price you paid for your original or previous share.
You can purchase further shares by using either savings or by obtaining a mortgage or further borrowing. If you are interim staircasing, a copy of your mortgage offer would need to be forwarded to the Housing Association for approval. You are also limited to only borrowing the amount required for the extra share you are purchasing. This is not the case in respect of final staircasing. Your mortgage offer does not need to be approved and there is no limit on your borrowing.
If you are the original purchaser, Stamp Duty payable on staircasing is determined by whether you paid tax on the full market value at purchase, or whether you opted to pay it on the share you bought at the time.
If you chose to pay all the Stamp Duty for the whole value of the property, then there is no further stamp duty to pay regardless of how many “interim staircasing” transactions you take to get to 100% ownership. This is usually the most cost-effective way to pay in the long term but usually the least affordable at the time of purchase.
If you opted to pay stamp duty on the share, then stamp duty is a little more complicated when staircasing. Firstly, there is no stamp duty to pay until your ownership reaches 80%. However, at that point, the value of each “interim staircasing” price is accumulated to calculate the stamp duty payable. The drawback to this is that if the property market increases and thus the value of your property increases, you could pay more Stamp Duty for your share than if you had paid for the Stamp Duty at the outset.