Staircasing shared ownership with a short lease (<70 years)

Zypher20

I'm looking to pay off my current mortgage this year so I can staircase to buy more of my property.

The current lease has around 67 years remaining. I know short leases like this would normally affect the valuation of a normal property.  Does any one know how it affects a shared owership valuation.

Also in this case would the valuation be different if buying less than  100% to buying 100% where the property will become freehold?

eddddy

I don't know the answer to your specific question - maybe ask your Housing Association. (The answer might even be different for different housing associations.)


But, it sounds like you have 3 options for spending your cash...

1. Paying off your mortgage
2. Staircasing to buy a bigger percentage of your property
3. Extending the Lease

TBH, I might put paying off the mortgage at the bottom of the list, and extending the lease at the top of the list.


For example...

• 25% of a property with a 150 year lease (which is likely to be mortgageable)

might be more valuable than

• 50% of a property with a 67 year lease (which might not be mortgageable)

But Housing Associations sometimes have funny rules about extending leases etc. So you need to investigate whether it's cheaper to staircase first and then extend the lease, or extend the lease first and then staircase. (or whether it's the same either way.)

tinytiddles

If you can wait a bit before doing so, your housing association will be required to extend your lease to 990 years soon:

https://www.insidehousing.co.uk/news/news/shared-owners-to-be-given-990-year-leases-as-government-confirms-raft-of-changes-to-tenure-70271

eddddy

tinytiddles said:

If you can wait a bit before doing so, your housing association will be required to extend your lease to 990 years soon:

https://www.insidehousing.co.uk/news/news/shared-owners-to-be-given-990-year-leases-as-government-confirms-raft-of-changes-to-tenure-70271

That's a bit misleading.


The article goes on to explain that the plan is...

• New shared ownership properties will have a lease of 990 years
• Existing shared ownership leaseholders will be given the statutory right to extend their leases to 990 years - if their landlord is the freeholder, but it's less clear if the landlord isn't the freeholder.

But existing leaseholders (like the OP) will have still have to pay for the lease extension, and it may not be any cheaper than extending the lease today.

It may also take a year or two to become law. So the OP's 67 year lease might become a 65 year lease - which will probably be more expensive to extend.

And the plan might still change.


Here's an extract from the article:

Shared owners to be given 990-year leases as government confirms raft of changes to tenure

As part of its response to its consultation on a new model for shared ownership, the government has announced that all homes built under the new model will be issued with a minimum 990-year lease term.

In addition, current shared owners will be given the statutory right to extend their lease by 990 years where the shared ownership landlord is also the freeholder.

Under the current model, shared owners can be issued with a minimum lease of 99 years. This means they often have to pay thousands for a lease extension within the first 20 years of living in the property as it is extremely difficult to sell a home with a lease that is shorter than 80 years.

The government said it is also exploring options on how shared owners can extend their lease by 990 years when their landlord does not have sufficient leasehold interest to issue a 990-year lease extension.

princeofpounds

It's about time they did that though... it's been a real scam selling SO properties with 90 years leases and refusing to permit lease extensions without staircasing to 100% or very close to it.

To answer the OP's questions - yes a short lease does affect the valuation of the leasehold property. It reduces it. But of course it raises the cost of extending back to a long lease, when/if you eventually do that.

However, bear in mind that with a short lease, the property is not mortgageable. So you won't be able to raise a new mortgage to finance the next step of staircasing, if that was your plan. 

You need to dig out your SO provider's rules on both staircasing and lease extensions and read them thoroughly. You also need to model the cost and the end-state of both because it is not clear that staircasing is necessarily the priority option vs. lease extension, although it could be depending on various factors.

I am also confused by your comment about '100% where the property will also become freehold'. Leasehold properties do not become freehold when you own 100%. You can (potentially, subject to criteria) buy the freehold, but even that doesn't necessarily change the tenure from leasehold to freehold, particularly if this is a flat rather than a house. It just means you own the freehold (or a part of it).

eddddy

princeofpounds said:

I am also confused by your comment about '100% where the property will also become freehold'. Leasehold properties do not become freehold when you own 100%. You can (potentially, subject to criteria) buy the freehold, but even that doesn't necessarily change the tenure from leasehold to freehold, particularly if this is a flat rather than a house. It just means you own the freehold (or a part of it).

With shared ownership houses, the terms of the lease are often that once you own 100% you are automatically given the freehold.


TBH, I think I now better understand the OP's original question.

• A house with a short lease (67 years) has a low value - so buying the remaining 75% should be relatively cheap. And you end up with a freehold house.

• A house with a long lease (maybe which has been extended) has a higher value - so buying the remaining 75% should be relatively expensive. And you end up with a freehold house.

If it's as simple as that, you shouldn't extend the lease, because it will increase the cost of staircasing, and you should let the lease run down as short as possible, before staircasing.

But I suspect it's not that simple!

princeofpounds

eddddy said:

princeofpounds said:

I am also confused by your comment about '100% where the property will also become freehold'. Leasehold properties do not become freehold when you own 100%. You can (potentially, subject to criteria) buy the freehold, but even that doesn't necessarily change the tenure from leasehold to freehold, particularly if this is a flat rather than a house. It just means you own the freehold (or a part of it).

With shared ownership houses, the terms of the lease are often that once you own 100% you are automatically given the freehold.

Sure - I'm assuming that the OP is in that situation, but it's also possible they are not, and under some kind of misapprehension. So that was really me seeking their clarification.

eddddy said:

If it's as simple as that, you shouldn't extend the lease, because it will increase the cost of staircasing, and you should let the lease run down as short as possible, before staircasing.

But I suspect it's not that simple!

It's not. Because that will make the eventual lease extension more expensive - you're extending a shorter lease, for more of a property. 

But it may be an academic discussion as many freeholders will not permit lease extensions until you are fully staircased, or close to it.

Ultimately if you end goal is 100% freehold property, it shouldn't really matter if you extend first and staircase, or staircase then extend. In reality it's a bit messier than that, as the various formulas used aren't strictly consistent or accurate, and various rules may affect things too.