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A shared ownership property is one whereby the homebuyer, who must meet certain criteria, purchases a share in a property as opposed to the purchasing the property outright.
The original share purchased is usually between 25% and 75%. However, it can be possible to buy a share as low as 10%.
The remaining share will be owned by a Housing Association, and the homebuyer will then be required to pay rent on the remaining share.
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.
A specialist shared ownership solicitor will be familiar with shared ownership leases and so it is recommended that you use the services of such.
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.
Through staircasing, 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.
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.
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 25% tranche. You would then own a 50% share in the property and pay rent on the remaining 50% owned by the Housing Association. The greater the share you own, the less rent you will be required to pay on the remaining share.
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 make 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 only the original share purchased, 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 in order 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.
If at some point in the future you wished to sell your shared ownership property, before having completed final staircasing, 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 may 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 the outright 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 required to pay any service charges due under the lease but the “Specified Rent” due to the Housing Association would be reduced to nil. In addition, 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.
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