Shared Ownership: What is it and how you can staircase your property.

Shared ownership allows a buyer to purchase a share of a property and to rent the remaining unpurchased share. It’s aim is to make getting on to the property ladder more accessible and to reduce the upfront costs of purchasing a property, It is an attractive option for first time buyers.

For example: if you buy 25% of a property worth £200,000, you own £50,000 and you pay rent on £150,000.00. The amount of rent payable varies but would work out cheaper than privately renting.

The general criteria for Shared Ownership for a buyer is:

• • • They are 18 or over
    • They have a yearly household income of less than:
      • £80,000—outside London
      • £90,000—within London
    • They are unable to afford a suitable property on the open market.
    • The buyer is not in mortgage or rent arrears.
    • The buyer must have a good credit history (no CCJ’s).
    • The buyer can afford the regular payments and costs involved in buying a home.
    • The buyer should be able to cover the costs of buying a home.
    • The buyer should have access to the deposit amount required.

A buyer also needs to be able to satisfy one of the following conditions:

• • • They are a first-time buyer
    • They used to own a home but can no longer afford to buy one
    • They already own a home under a shared ownership scheme and want to move
    • They already own a home and want to move but cannot afford a home suitable for their needs.
    • They are requiring a new household, for example after a separation.

Rules can vary slightly between Housing Associations, so it is always best to check with them in the first instance.

It should also be remembered that in some situations there may be additional costs such as service charge or maintenance fees in addition to the rent paid on the unacquired share.

Whilst the initial aim of the scheme is to help make a property affordable, it is hoped that in time a buyer will be able to afford to increase the percentage of the property they own. This can be done in stages up and eventually up to 100% ownership, which would mean that they own the property outright. The term for this is ‘Staircasing’.

Depending on the terms of your Lease, a buyer can increase the percentage of their ownership of a Property in stages. Currently, the minimum share increase is now 5%.

Each time an increase is requested for the property a valuation will need to be carried out. The amount of the valuation will determine the amount you pay for your next percentage of ownership. As the percentage of ownership increases, the percentage of rent payable will decrease.

Before purchasing a shared ownership property a buyer should check whether they have the option to purchase up to 100% of the Property as some Housing Associations will not allow this and will only allow a maximum of 80% ownership.

When purchasing a shared ownership property, normal rates of Stamp Duty are payable.

A buyer has an option to pay stamp duty in two ways:

• they can pay Stamp Duty on the full value of the property when they purchase their first share. This will then exempt a buyer from any further payments of stamp duty.
• the other option is for a buyer to pay stamp duty on each share as they purchase it. If they choose this option, they will pay stamp duty only on the first share they purchase and then further payments will potentially be due on subsequent shares as they increase their percentage of ownership.

The decision is usually down to their personal circumstances and whether they intend to eventually purchase 100% of the property in the future.  If they intend to eventually purchase 100% of the property, it would probably be advisable for them to pay stamp duty on the current market value of the property in the first instance. The likelihood is the value of the Property could increase, stamp duty thresholds could change, and it is sometimes beneficial to be able to take advantage of possible stamp duty reliefs such as the First Time Buyer Relief.

If a buyer, then decides to sell their shared ownership property they will need to notify their Housing Association of their intention if they own less than 100% of the Property. Upon notification of their intention to sell, their Housing Association will have a set amount of time (detailed in your Lease) to find a buyer or they may wish to purchase it back themselves. If they are not able to agree a sale within the agreed time limit, then a buyer will be able to proceed with arranging a sale of the Property themselves.

When a sale is agreed for a property your Housing Association will require a RICS valuation of the property to determine the value of your share of ownership.

Purchasing a shared ownership is not the same as full ownership and is liable to extra costs over time such as solicitors fees when you increase your percentage of ownership. The selling and buying procedure can also be more complicated due to the complex legal nature of the leases and involvement of additional third parties. This can result in the process taking longer than a standard transaction.  It does, however, offer a practical and affordable route to owning a property.