Staircasing your shared ownership
If you bought your home using a shared ownership scheme you may be considering staircasing. This is where you buy further shares in your home so you own more of it. But how much does staircasing cost? What are the steps you have to take? What are the common pitfalls? And should you do it? We look at everything you need to know.
What is staircasing?
Once you have owned your shared ownership property for a certain period of time – set in the terms of your lease but usually one to two years – you can purchase further shares in your home.
For example, if you start by buying 25% of your home and renting the other 75% you could buy another 25% share. That would mean you own 50%.
This process is known as staircasing. It enables you to gradually build up the amount of your shared ownership home that you own. Ultimately, you may be able to use staircasing to buy 100% of your home. Although check the terms of your lease as this isn’t always possible – some housing providers limit the amount of shares you can staircase up to.
Read our full guide to shared ownership to find out how this scheme can help you get on the housing ladder.
What are the benefits of staircasing?
There are a number of reasons that you might want to increase the share of your home that you own:
1. Pay less rent. By reducing the percentage of your property that you rent from your local housing association you will also cut your monthly rent bill. Your mortgage repayments will go up, but you won’t be at the mercy of ever rising rental costs.
2. Benefit from any increase in house prices. The more of your home that you own the greater you’ll benefit if its value increases.
3. More mortgage choice. If you staircase your way to owning 100% of your home you’ll be able to get a standard mortgage, rather than a shared ownership mortgage. Standard mortgages tend to be cheaper.
4. Freedom to sell. Own 100% of your property and when you want to move on you should be able sell it on the open market. However, if your property is still leasehold you may still have to offer it back to the housing association first. Make sure you check your lease. If you own less than 100% your housing association will need to find someone to buy your share from you.
5. Security. Until you own 100% of the property, you’re a tenant in the eyes of the law which could mean you lose your property – and the money you’ve put into it – if you don’t keep up the rental payments.
Do I have to staircase?
No. You don’t have to staircase and increase your shares if you don’t want to. In 2018 a study by housing association Aster found that only 10% of those in shared ownership chose to staircase. Many find the hassle and financial costs of doing so outweigh the benefits. And many people view their shared ownership home as a more secure form of renting, with the added advantage of also building up equity in a property.
How does staircasing work?
- First of all, you need to contact your housing provider and give notice that you intend to staircase.
- Your housing association will arrange for an independent surveyor to value your home. Alternatively, they will give you a list of approved chartered surveyors you can use. Shares are sold at their current market value. So, if your home is valued at £300,000 and you want to buy a 25% share it will cost you £75,000 – plus legal and other fees (see below).
- You will need to appoint a solicitor or conveyancer to act on your behalf during the purchase process.
- You’ll receive a copy of the valuation and be asked to confirm you want to proceed. Most valuations are valid for only three months. If you take longer than that to complete on the transaction, a new valuation will be needed. So, get your skates on and get your finance in place and the purchase completed so you can avoid having to pay for a new valuation.
How much does staircasing cost?
On top of the purchase price for the additional shares there are several other costs involved in staircasing:
- Surveys. Surveyors aren’t free, and you’ll have to pay for the valuation report.
- Legal fees. You will need a solicitor or conveyancer to handle the legal work. You can read our guide to conveyancing fees to get an idea what this will cost. Bear in mind you will foot the bill for all the legal fees, it won’t be shared with the housing association.
- Stamp duty. Depending on the value of the additional shares you are buying you may have to pay stamp duty. See below for more detail on staircasing and tax.
- Mortgage fees. You may have to pay fees for a new mortgage. This could range from nothing to £999 depending on the deal and your circumstances.
Typically, it costs around £2,000 to purchase additional shares in a shared ownership property on top of the price of the shares themselves. But this is a ballpark figure and varies depending on where you live, the value of your home and how big a share you are buying.
Stamp duty and staircasing
When you first purchase a shared ownership property you have a choice about how you pay stamp duty. You can either make a one-off payment based on the total market value of the property. Or, you can choose to pay stamp duty in stages. That is, you pay what is owed on the initial share you buy, then pay again if you buy more shares.
If you make a one-off payment then you won’t have to pay further stamp duty if you choose to staircase. This could be beneficial if you think the value of your property will rise substantially before you buy further shares.
Here’s an example. You are a first-time buyer purchasing a 25% shared in a flat valued at £400,000.
- One-off payment. You would pay £5,000 stamp duty. As a first-time buyer you get tax relief on the first £300,000 of the property. You then pay 5% stamp duty on the remaining £100,000. If you aren’t a first-time buyer you would pay £10,000 stamp duty at this point.
- Pay in stages. You wouldn’t pay any stamp duty at this stage. That’s because the value of the share you are buying falls below the first-time buyer relief of £300,000. If you aren’t a first-time buyer there would be a small amount of stamp duty to pay. How much depends on how much rent you pay on the remainder of the property.
If you choose to pay stamp duty in stages when you first purchase a shared ownership home, then you could face a tax bill when you staircase. This depends on how much more of your property you buy. Until you own 80% of the property there is no stamp duty to pay. Once you reach 80% you pay stamp duty on the transaction that took you over 80% and any further transactions.
Here’s an example of paying stamp duty in stages and staircasing.
|Shared of the property owned at end of transaction||Amount paid for transaction||Total amount paid to date – used to work out stamp duty||Stamp duty owed|
The £175 owed in the example is based on 0% stamp duty on the first £125,000 then 2% of the £35,000 which is £700 which is divided by four to reflect the 25% you have purchased in the last transaction.
In this example, you would also owe £800 for the first lease premium, which is linked to the later transactions and payable at that time.
You can use HMRC’s stamp duty calculator to work out how much tax you would have to pay if you buy a shared ownership home.
If you staircase to over 80% then make further purchases to take you to 100% you would owe stamp duty on all the further transactions separately.
How do I pay for additional shares of my shared ownership property?
You can either:
- Extend your existing mortgage
- Use your savings
If you need a mortgage to purchase the extra shares you’ll need to contact your mortgage lender and probably remortgage. We’d recommend speaking to a mortgage broker in order to find the best deal for a shared ownership mortgage. Once you have your finances in place you can instruct your solicitor to go ahead with the purchase.
What happens with my rent payments?
Because you end up owning more of your home, you’ll pay less rent. How much your rent payments fall depends on how big a share you now own.
If you end up owning 100% of your home, you won’t pay any more rent for your property. But, you could still have to pay ground rent and service charges. This will depend on the type of property you are buying. If it is a flat it will always be leasehold so these payments will still be due.
If you are staircasing and live in a house you should find out if you can buy the freehold when you make the final payment taking you to 100% ownership. If you can’t then your property will remain leasehold, even though you own 100% of it. This means you will still have to pay ground rent.
Here at the Homeowners Alliance we don’t think that is fair. If you own 100% of your house you shouldn’t still be liable for ground rent. The housing association should allow you to buy the freehold.
How many times can I staircase?
This varies depending on the terms of your lease. In most cases, you can staircase up to three times to take you up to owning 100% of your home. Given that you’ll pay admin fees every time you staircase it makes sense to buy as big a chunk as you can each time.
Can I sell shares back?
Possibly. If you are struggling with your mortgage payments, you may be able to ask your housing association to buy back shares in your home. This is known as downward staircasing. Whether you can do it will depend on the terms of your lease.
Can I sell my shared ownership home?
Yes. If you own less than 100% of your home your housing association will get a set period of time to find a buyer. Once you own 100% you should be able sell your property on the open market. However, if your property is still leasehold check your lease first, some require you to offer the property back to the housing association first.
You can find out more in our guide to resale of shared ownership homes.
Shared ownership staircasing at a glance
In summary, if you want to staircase and own more of your shared ownership property start by:
1. Checking your lease for what’s involved
2. Contacting your housing provider for details on process and timings
3. Getting an early idea of total costs before you commit to spending money on formal valuations and remortgaging
4. Deciding whether buying more shares is affordable and right for you now and longer term