Staircasing – is now the time to buy more shares?

Bill Dhariwal, Director and Solicitor, and Bernard Arhin, Staircasing and Resale Conveyancing Executive at Lawcomm Solicitors review the new rules on staircasing and whether now might be a good time for shared ownership property owners to consider buying additional shares in their property

As property prices are forecast to decline throughout 2023, now could be a good time for owners of shared ownership properties to buy more shares in their property.

“Staircasing” or “standard staircasing” is the process which enables a shared ownership property owner (a leaseholder) to buy more shares in their property from their housing association or other registered provider (a landlord). Shares can be purchased until there is 100% ownership unless the shared ownership lease contains restrictions such as for elderly leaseholders. When more shares are purchased, less rent will be payable.

A leaseholder can usually buy shares of 5% or more at any time. However, if a leaseholder purchased their shared ownership home since 2021 they may be able to buy shares of 1% each year for the first 15 years. This is called “gradual staircasing”.

Existing Guidelines

Under existing guidelines, leaseholders can staircase and progress to full ownership by purchasing 5% to 10% shares at a time. With increased house prices and mortgage rates, staircasing in such segments can be expensive. Leaseholders will also have to pay for a professional valuation of the property, legal fees and their landlord’s administration costs. Any home improvements completed are usually discounted from the valuation.

The fees associated with standard staircasing can make the process expensive and deter leaseholders from owning 100% of their property.

New Guidelines

Gradual staircasing allows owners of shared ownership properties to purchase smaller segments from as little as a 1% share with reduced fees. Homeowners can usually also buy larger shares should they wish to do so.

The price to determine the 1% share to be purchased is based on the estimated valuation provided by the landlord linked to the original price and is adjusted each year (upwards or downwards) in line with local House Price Inflation (HPI).

This is a welcome move for leaseholders as it means that leaseholders looking to staircase a further 1% will no longer have to obtain a professional valuation every time they register their intention to staircase with their landlord. Further, the landlord will no longer be able to charge an administration fee.

Landlords will be required to rely on the original valuation (original purchase price of the home) to determine and produce the valuation to be relied on for the transaction. The valuation is valid for three months. If a leaseholder is unhappy with the valuation, they can obtain their own professional valuation at their own cost.

Landlords are prevented from charging administration fees under the gradual staircasing scheme.

A limitation under the gradual staircasing scheme is that a leaseholder is unable to roll over unused options to buy 1% shares to future years.

When a leaseholder sells their shared ownership property (called a resale), a new 15-year term will be offered to the new shared ownership owner.

The changes are significant as they should enable shared ownership leaseholders to staircase without the need to borrow further mortgage funds, and they should avoid valuation and administration fees. It is hoped that successive 1% shares can be purchased from savings or gifts. The lower the HPI the cheaper the share will be to purchase.

The main fees under gradual staircasing will be legal fees, where leaseholders require legal advice and support. That is obviously something we can help with!

For further information regarding staircasing or purchasing a property, please do not hesitate to contact us via email. Bill Dhariwal − bill.dhariwal@lawcomm.co.uk or Bernard Arhin − Bernard.arhin@lawcomm.co.uk