Staircasing and Shared Ownership: What Is It & How Do You Do It?

mariam-abu-hussein
Mariam Abu HusseinLegal Assessment Specialist @ Lawhive
Updated on 15th April 2024

Are you considering taking the next step up the property ladder? Whether you're a first-time buyer or looking to increase your share of a property, shared ownership could be an option available to you.

staircasing-and-shared-ownership

But, it sounds complicated, right? Not to worry, in this article, we'll break it down and simplify the ins and outs of Shared Ownership and Staircasing.

What is shared ownership?

Shared ownership is a way to buy a home if you can't afford the full deposit and mortgage payments for a home that suits you.

In shared ownership, you buy a share of the property (from 10% to 75% of its full market value) and pay rent to the landlord on the rest. You can buy more shares later, but you don't have to.

Additionally, you usually pay monthly ground rent and service charges for the maintenance of communal areas.

Different shared ownership schemes cater to specific demographics and circumstances including:

  • Older Persons Shared Ownership (OPSO), designed for individuals aged 55 years and above.

  • Home Ownership for People with Long-term Disabilities (HOLD).

  • The DIY scheme for people in rural areas or those contributing their own capital to property development or restoration.

  • Right to Shared Ownership (RtSO) for social tenants living in rented homes provided by the 2021–2026 Affordable Homes Programme.

Who can buy a home through shared ownership?

You can buy a home through shared ownership if:

  1. Your household income is £80,000 a year or less (£90,000 per year or less in London) and

  2. You can't afford all of the deposit and mortgage payments for a home that suits your needs.

Additionally, one of the following must apply to you:

  • You're a first-time buyer or you used to own a home but can't afford one now.

  • You're forming a new household.

  • You're an existing shared owner and want to move.

  • You own a home and want to move but can't afford a new one that suits your needs.

You might also have to show that you live in, work in, or have a connection to the area where you want to buy the home.

What type of homes can you buy through shared ownership?

All shared ownership properties, whether houses or flats are leasehold properties offered by providers like housing associations and local councils.

Through shared ownership, you can buy a newly built home, an existing home (through a shared ownership resale scheme), or a home tailored to your specific needs, like a ground floor flat if you have a long-term disability.

What is the process of buying a shared ownership property?

Typically, you can purchase a share of a property between 25% to 75%, although you may be able to buy a 10% share in some homes.

You can get a mortgage or use your savings to fund your share. You'll also need to provide a deposit, typically between 5% to 10% of the share you're purchasing.

After this, you can buy more shares in your home over time through a process called 'staircasing.'

How much does it cost to buy a shared ownership home?

The cost of buying a shared ownership home can vary and it's important to consider all the associated costs.

Reservation Fee

The reservation fee secures the home for a fixed period and typically costs up to £500. This is deducted from the final amount on completion day. However, if you decide not to buy the property, you usually won't get this fee back.

Buying Costs

These include:

  • Your deposit (usually 5-10% of the share you're buying)

  • Solicitors' fees

  • Monthly mortgage repayments

  • Rent to the landlord

  • Service charges

  • Stamp duty.

Building Insurance

You'll need to pay for building insurance and, depending on the property, you might also have to pay a service charge, estate charge, management fee, and contribute to a repairs reserve fund.

Extending Your Lease

If the remaining lease on your shared ownership home is short, it could lower the property's value and your ability to sell or remortgage.

This process can be costly, especially if the remaining lease drops below 80 years.

Do I need a solicitor to buy a shared ownership home?

You need a legal professional to oversee the transfer of ownership from the seller to you. This is known as conveyancing.

You can use a solicitor or licensed conveyancer to buy a shared ownership home. Their role is to explain the terms of the shared ownership lease to you and verify the conditions outlined in your mortgage offer.

What is staircasing?

Once you own a shared ownership home, you can gradually increase your ownership through 'staircasing.' By purchasing more shares, you reduce the rent you pay the landlord, which is calculated based on their share.

How does staircasing work?

Generally, you can buy extra shares in your shared ownership home whenever you wish. However, some homes may have specific waiting periods before you can buy additional shares.

The cost of the new shares is based on the current value of your home.

To work this out, you'll need to pay for a valuation from a surveyor registered with the Royal Institution of Chartered Surveyors (RICS). After the valuation, your landlord will give you the share price.

Typically, you can buy shares of 10% or more at any time. However, some older leases might require you to buy shares of 25% or more. Newer leases may allow purchases of 5% or more.

If you purchased your home after 1st April 2021, you might have the option to buy shares of 1% each year for the first 15 years, but you won't be able to buy shares of 2%, 3% or 4%.

Each time you buy a share of 5% or more, the landlord may charge an administration fee, which can range from around £150 to £500. If you decide to buy more shares following a valuation, you must do so within three months of the valuation date. Otherwise, you'll need to get a new valuation.

Staircasing rules & restrictions

Understanding the staircasing rules and restrictions in the UK's Shared Ownership model is essential. These rules include:

Ownership Threshold

In many Shared Ownership deals, you usually need to own at least 10% of the property before you can consider staircasing.

Minimum Staircasing Amount

Typically, you can buy at least 10% more in a single staircasing step, but these numbers can change, so you should check your specific agreement.

Service Charges and Rent

When you staircase, your rent usually goes down for the part you don’t own, but your share of the service charges might go up.

Valuation Process

Every time you staircase, your property’s value is reevaluated. The price for the extra share you’re buying is based on what your place is worth at that time.

Ownership Cap

Some Shared Ownership homes have a limit on how much you can eventually own, it’s important to know if there’s a cap on your property and how it might impact your staircasing plans.

Resale Restrictions

Certain Shared Ownership properties might have rules about selling, especially if you own a certain percentage. 

These rules aren’t set in stone and can change depending on the Shared Ownership agreement. So, it’s always a good idea to check your lease and chat with professionals for personalised information and advice. And if things do get complicated, seeking advice from a property solicitor or financial adviser is a wise move to make the staircasing process smooth. 

Benefits of shared ownership

There are some benefits of staircasing. These are: 

  • Increased Ownership: Gradually own a larger part of your home, giving you more control.

  • Lower Monthly Costs: As you buy more shares, the rent on what's left goes down, making it more affordable.

  • Equity Growth: Your ownership grows with the property's value, potentially leading to financial gains.

  • Control Over Improvements: With more ownership, you can personalise and improve your home.

  • Affordable Entry to the Property Market: For some, it could be a cost-effective way to enter the market.

  • Stability and Security: Owning more of your property can give you a sense of safety and certainty.

  • Freedom to Sell: When you own 100%, you can sell on the open market if you decide to move.

  • Independence: More ownership means more control over where you live, reducing reliance on others.

Disadvantages of shared ownership

Shared ownership has long been hailed as a means to get on the property ladder affordably.

However, the reality for some has fallen short of this promise due to rising rents, unpredictable service charges, responsibility for repairs and maintenance costs, and complicated lease agreements.

  • Difficulty Selling: Selling your property after reaching 100% ownership can be tough because these homes are often meant for low-income families, and finding a buyer who meets the same criteria can be challenging. What's more, shared owners sometimes encounter challenges when attempting to sell their stake if their properties are affected by building safety issues.

  • Increased Costs: Buying more shares might mean higher mortgage payments, which can affect your overall housing costs.

  • Market Fluctuations: Like any investment, your property's value can go up and down based on market conditions, which can affect your potential gains.

  • Financial Commitment: Staircasing needs a certain level of financial commitment, and there might be unexpected costs like valuation, legal fees, and mortgage arrangements.

  • Repair and Maintenance Costs: Shared owners have to cover all repair and maintenance costs despite only owning a portion of the property. Moreover, the services provided for repairs and maintenance can sometimes be delayed or of substandard property.

  • Time-consuming: The whole staircasing process can take a lot of time and be stressful. You'll need to coordinate with different people at each step.

  • Rising Service Charges: A primary concern for most shared owners is the unchecked service charges imposed by the provider or landlord. These escalating expenses can prevent shared owners from increasing their ownership.

  • Ownership Cap: Some properties have a cap on how much you can own, which means you may never own the whole property.

  • Complex Process: Shared ownership involves navigating complex lease agreements, yet there isn't a lot of guidance available to help them. Recent improvements to shared ownership leases in 2021 addressed some concerns, but these improvements don't extend to properties acquired under the previous Affordable Homes Problem, potentially hindering the sale of older shared ownership properties.

  • Resale Restrictions: Some Shared Ownership homes have rules about selling, which could affect your ability to sell.

  • Potential Capital Gains Tax: If you sell the property and make a big profit, you might have to pay Capital Gains Tax, depending on tax laws.

  • Market Limitations: Sometimes, there might not be many properties available for staircasing, so finding the right one can be tricky.

When thinking about shared ownership staircasing, you need to consider these downsides along with the benefits and your situation. It's smart to get advice from experts or your housing association to make an informed choice.

How long does it take to staircase to 100%?

How long it takes to go from where you are to owning 100% of your property depends on a few things, like how much your home is worth and how much you already own. These factors will decide how much money you need to buy each additional share, and how long it will take. 

If you plan and set up a savings strategy, you can buy more shares at your own pace, and eventually, you’ll have full ownership of the property.

Do you have to reach 100% before selling?

Generally, it is not necessary to reach 100% ownership before selling. However, the rules may vary depending on your Shared Ownership agreement and the policies of the housing association or developer involved.

If you decide to sell your property before reaching 100% ownership, you can typically sell the percentage you currently own. The housing association or developer usually has the first right of refusal, meaning they can find a buyer for your share before you offer it on the open market. 

If they cannot find a buyer, you can sell your share to someone else. 

Do you pay stamp duty when staircasing?

You may need to pay stamp duty on the shares if the total ownership value exceeds £125,000. 

However, if the value of the shares is below that threshold, no payment is required. When staircasing, consulting a solicitor or conveyancer can clarify where you stand with stamp duty. 

How much does it cost to staircase?

The cost to staircase in shared ownership will vary depending on the property value, the percentage you wish to purchase, and the associated fees. 

Is it worth it?

Purchasing a home is one of the biggest investments you will make in your lifetime, and shared ownership can be an option if you don't have enough funds for a full-scale purchase. However, it can also present challenges down the road.

In March 2024, the House of Commons Committee published a report on shared ownership, which included several recommendations to the government to improve shared ownership.

Get help from property law specialists

For more information on shared ownership and staircasing in the UK or other conveyancing matters, our property solicitors are on hand to help.

To get started, tell us about your situation to get a fixed-fee quote for what you need and connect with the best solicitor for your matter. 

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