Shared ownership is intended to provide help for those who cannot yet afford to get onto the property ladder. The scheme allows buyers to own a share of a property whilst paying rent on the remaining portion.
On a Shared Ownership Scheme, the buyer purchases a share in the property usually between 25-75%. Rent on the remaining share will be paid to the Housing Association. The buyer must provide a deposit, though this can be very small, and they will usually obtain a mortgage to help purchase their share of the property.
The share of the property that the buyer owns is held as a leasehold property. This means that they do not own the freehold of the property, however, they do own a share in property which can be bought and sold.
The buyer can increase their share in the house through what is known as ‘staircasing up’. They do this by purchasing additional shares in the property until they own it entirely. As the buyer’s share increases the rent payable to the Housing Association will decrease.
For leases granted for a term of more than 21 years there is usually a statutory right to extend the remaining term of the lease – for more guidance on this issue see Campions Solicitors’ blog on lease extensions. There is no such right for a buyer through the shared ownership scheme to extend their lease unless either they staircase up to own 100% of the property or have otherwise come to an agreement with their landlord to grant an extension. If you are considering extending a Shared Ownership lease then you should read your lease agreement to see if there is a clause granting you this right.
One mortgage lender has indicated that they will not provide mortgages for lease with 85 years or less remaining term. Shared ownership leases are usually granted for a term of either 99 or 125 years. Therefore, many of these leases are now approaching the stage at which extension should be considered to help retain their market value.
If you currently own a lease through the Shared Ownership Scheme and there is not a provision in your lease granting a right to extend the term then you may wish to staircase up to 100% to qualify for a statutory right to the extension. This may prove profitable, by allowing you to preserve or increase the value of the property before its sale. There are, however, tax implications which must be considered. The purchase of additional shares in the property and the extension of the lease may be considered a ‘linked transaction’ by HMRC, which could make you liable for Stamp Duty Land Tax (SDLT). This does not necessarily prevent staircasing and extending your lease from being profitable, but must be considered before beginning the process – for further advice contact Campions Solicitors.
If there is a provision in your lease agreement which allows you to extend your shared ownership lease then you will not need to staircase up. However, you may still wish to do this if by selling the leasehold for the entire property you are able to obtain a higher market value than you would by selling only a portion of the property.