Back-to-back staircasing – what is it?
Back-to-back staircasing allows someone in the open market to purchase 100% of your Shared Ownership home. In essence, the buyer purchases your part share and the balance from the landlord (often a Housing Association). You make a gain (or loss) on your part share only.
It is also referred to as a back-to-back sale, or a simultaneous sale and staircasing transaction.
Do all shared owners have the option of back-to-back staircasing?
Not necessarily. Because Shared Ownership is classified as ‘affordable’ housing, the government sets out various requirements to give eligible homebuyers first dibs on the part share a shared owner wants to sell.
Your landlord has the right to find a buyer during a time-limited period called the ‘nomination period’. This was previously 8 or 12 weeks (depending on the lease), but government reforms reduced it to 4 weeks on new leases. During the nomination period you must sell your part share at a price no higher than the market value calculated by a RICS surveyor.
Designated protection areas
Open market sales are not allowed, for example, in some rural areas where it is harder to replace affordable housing stock. If your Shared Ownership home is in a ‘designated protection’ area, you’re likely to have a ‘mandatory buyback’ lease. In that case, your landlord should either find a buyer or buy back your share.
Why would anyone undertake back-to-back staircasing?
In short, they might want to, or they might need to. Perhaps they think they’ll get a better price via back-to-back staircasing, or they can’t find a buyer for their part share. In the following sections, we explore some reasons a shared owner might undertake back-to-back staircasing.
Property with a short lease is generally harder to sell. This is partly because fewer lenders provide mortgages for homes with a low number of years remaining on the lease. Back-to-back staircasing (to 100%) has the advantage of eliminating a short lease by obtaining the freehold (unless the property is a leasehold house). But this option is not available to shared owners with flats, as these remain leasehold even after staircasing to 100%.
Ground rent is a charge paid by residential leaseholders to their landlord. The landlord does not have to provide a clear service in return. Historically, Shared Ownership homes were offered with ‘peppercorn’ ground rent (effectively zero). However, ground rent terms have been introduced into some Shared Ownership leases.
Obtaining the freehold of a house via back-to-back staircasing will eliminate ground rent. However, back-to-back staircasing will not obtain the freehold of a flat, a leasehold house, or a property where staircasing is capped below 100%.
Lease contracts for Shared Ownership homes specify an annual rent review. Rent increases are typically around 0.5% higher than annual inflation (RPI), and are calculated on an ‘upwards only’ basis. Sometimes this policy can result in rent becoming more expensive than rents on other comparable local properties. Obviously this could make the property unattractive (or even unaffordable) to potential buyers. So a back-to-back transaction may be necessary to eliminate rent (as no rent is payable after staircasing to 100%).
Large percentage share
Some shared owners report concerns about staircasing above 50%. They worry that homebuyers who can afford a large percentage share may prefer to purchase on the open market instead. It’s probably a complicated picture. For example, the desirability of a large share is likely to depend on location. An 80% share may be attractive to buyers in rural areas where there are fewer housing options, and less attractive in urban areas where there is more choice.
Pros of a back-to-back sale
If your Housing Association fails to find a buyer during the nomination period, you can then sell on the open market, potentially at a higher price than the RICS valuation if you undertake back-to-back staircasing. If you do achieve a higher sale price than the RICS valuation, the Housing Association receives their share per the RICS valuation, and you get to keep the balance.
If you sell via back-to-back staircasing you could have a larger pool of potential buyers, as they will not be required to meet eligibility criteria.
Downsides of a back-to-back sale
Downsides for the seller
If you can only find a buyer at a lower price than the RICS valuation you may be required to take on the full shortfall, not just the shortfall on your own percentage share.
Back-to-back staircasing could incur additional costs potentially including: the Housing Association’s administrative fee for staircasing, their solicitor’s fees, and a Land Registry fee. (Usually a buyer pays the Land Registry fee but selling via a back-to-back transaction means you should expect to pay the Land Registry fee, even if the buyer is registering the property).
If you instruct an estate agent, you may end up paying fees to both the Housing Association and the estate agent. Some Housing Associations will waive their resale fee. Others will insist on being paid, as it isn’t a discretionary term in the model lease.
Some shared owners have been misadvised regarding Stamp Duty Land Tax (SDLT) on back-to-back staircasing, leaving them out of pocket. Read our article on SDLT to avoid being caught out!.
Downsides for society
Shared Ownership homes are classified as ‘affordable homes’. They are intended for homebuyers who can’t afford to buy on the open market. Selling a Shared Ownership home via back-to-back staircasing means it is no longer accessible to households meeting eligibility criteria.
Some might argue that selling publicly subsidised Shared Ownership homes into the open market doesn’t provide value-for-money to taxpayers, as those homes stop being available as a ‘foot on the property ladder’.
Don’t take our word for it!
When it comes to resales, different landlords can have very different policies on everything from nomination periods, to property marketing services, to administration fees. It’s vital to check your own Housing Association’s policies, and to get any information or advice in writing in order to avoid ambiguity and disappointment down the line.