Shared ownership staircasing

xnemesis

Hi all

Just after a bit of advice/any thoughts. Currently I own 40% of a flat in south London, which was £260,000 at point of purchase.
I have just had the flat valued, and they suggest in the region of £275,000. I had previously pushed the idea of staircasing on the basis that beyond 40%, it prices out lower income families when thinking about re-saleability.
I have just made some enquiries with a mortgage adviser, who has said I cannot mortgage for 100% as I won't be able to get a sufficiently large mortgage. It looks like I am likely to be accepted for 80%, which won't massively increase my monthly payment as my interest rate will drop (currently 4.79%).
What are people's thoughts/advice? I am thinking in about 2 years I will be thinking about selling.

Thanks in advance

Lurkingtoposting17

I was always advised on mine anything above 50% is hard to sell on. I was also advised against staircasing in icremements due to fees and instead just hang on until I could afford 100%. I sold my 25% share within 3 months of it going on the market. There was a couple on market at same time for higher percentages that were still available once mine had sold.

If you're planning on selling in two years, besides lower mortgage payments is there much point staircasing if you won't own it outright? The money maybe better used to save towards a property on a wholly owned property?

At 80% share people I think could be more likely to look at a brand new help to buy property instead?

I don't see much benefit, personally, if not staircasing to 100% and staying in the property.

00ec25

also bear in mind do you know how the Stamp duty was dealt with when you originally purchased ?

if you did not make a market value election and instead chose to pay when you staircase then 80% is the magic number at which you must then pay SDLT again.

i see no point in staircasing a property you intend to sell in 2 years time. You would have to be very lucky (or des res London) to cover all the fees involved in the share purchase on any increased value on the extra share after only 2 years

haras_nosirrah

I am a mortgage broker who specializes in shared ownership and has a lot of staircasers at the moment due to the low rates making it an attractive option.

I would generally say it depends on what you want to do long term

if you think you are likely to be in the property longer term (5+ years) or your income is likely to dramatically increase you could do 75% share now thus avoiding stamp duty - you are probably looking at circa 1k for solicitor fees, £250 for the survey and then any mortgage fees on top. This would then mean you are more in keeping with the market as your property is increasing at 75% of the speed of everything else in your area rather than 40% which will make it easier to jump across to the open market. When your income increases then look at going to the 100% - you only pay stamp duty on the last 25% which is a saving in itself rather than paying stamp duty on the 60% if you do it all in one go.
The risk you run is if you don't get higher than 75% you will have to try and sell the 75% to someone else. If you can't find a buyer under shared ownership most housing associations will allow you to sell as a 100% property on the open market and you get 75% of the sale price, they get 25%

if you are looking at staying there less than 5 years it probably isn't worth staircasing due to the fees - instead overpay or save so you will have the deposit to move to the open market when you sell.

xnemesis

Hey all

Thanks for the advice. My only thought around staircasing was that the property value here is forecast to increase dramatically as we're having a westfield shopping centre built (Can you guess where I live?). So I would make more money out of it then. It's not the case that I have money saved that I can continue saving but have had a significant salary increase since I originally bought the place. But I completely take the point about re-saleability.

Can I just confirm, I thought that stamp duty was payable on any share with a value above £125k rather than the share amount?

Thanks!

NineDeuce

Last year I staircased from 25% to 100%. I intend to sell within a couple of years and so I thought it was worth it for 2 reasons: -

1. Payback - if you treat this like a project as such, with the legal fees for staircasing being the cost, you will almost certainly achieve a quick payback through your additional equity gains instead of paying rent and service charge.

2. 100% - now I own the property outright, it opens up my potential market to a wider range of people. SO has a limited appeal, although I do like the scheme a lot.

Further to point 2, you should really consider using staircasing to 80% as a stepping stone to staircasing to 100% before leaving. Of course, you benefit from the increased equity rate, but buying 80% of a property has an even more limited market than buying 40%.

You would be either pricing yourself out of most SO buyers who just want to get on the housing ladder cheaply or edging towards another sector of people with more money who will probably think that they may as well look for a normal 100% leasehold deal rather than 80%. These people may also be put off by the fact that it is SO, not realising how the scheme fully works.

NineDeuce

I just realised that most people on the forum here had already stated what I said.....

xnemesis

NineDeuce wrote: »

I just realised that most people on the forum here had already stated what I said.....

I still appreciate the input. Especially as you've been through it. Then I think perhaps I will look at staircasing to 75% (80% dependent on stamp duty) with a view to staircasing to 100% in 2 years more then. If that's the case, I might get the paintbrush out and do some of these many things I planned to!

00ec25

xnemesis wrote: »

Can I just confirm, I thought that stamp duty was payable on any share with a value above £125k rather than the share amount?

no, as i mentioned when you first buy an SO property you are required to make a choice between 2 options. if you have forgotten what you did (or did not understand the implications at the time), then get out your paperwork and check, as you cannot alter it later. Once selected you are "stuck" with your decision:

a) pay SDLT on the full (ie 100%) value of the property at the point you buy it and then never pay SDLT again even if you subsequently buy further shares in it ("Market Value Election")
or
b) pay SDLT as you "staircase". You will pay SDLT on the intial purchase share if that payment is above the threshold. You will not pay any more SDLT on further staircase steps until your ownership is at, or over, 80%

read: https://www.gov.uk/guidance/sdlt-shared-ownership-property

xnemesis

00ec25 wrote: »

no, as i mentioned when you first buy an SO property you are required to make a choice between 2 options. if you have forgotten what you did (or did not understand the implications at the time), then get out your paperwork and check, as you cannot alter it later. Once selected you are "stuck" with your decision:

a) pay SDLT on the full (ie 100%) value of the property at the point you buy it and then never pay SDLT again even if you subsequently buy further shares in it ("Market Value Election")
or
b) pay SDLT as you "staircase". You will pay SDLT on the intial purchase share if that payment is above the threshold. You will not pay any more SDLT on further staircase steps until your ownership is at, or over, 80%

Ah, thanks. I hadn't actually realised that. Although I still believe I made the right decision not to pay stamp duty. Particularly as I may not staircase to 100%. Looking at buying another property for rental rather than staircasing. I'll have a chat with my mortgage adviser also.

Thanks all

00ec25

xnemesis wrote: »

Looking at buying another property for rental rather than staircasing. I'll have a chat with my mortgage adviser also.

then make sure you understand how the higher rate SDLT works as you will have to pay it if you spend more than £40k buying a "rental"!
https://www.gov.uk/government/publications/stamp-duty-land-tax-higher-rates-for-purchases-of-additional-residential-properties