The Government has recently announced its proposed changes to the Shared Ownership Scheme. This followed a consultation which was held over the summer. The changes are designed to enable more people to be able to get on to the home ownership ladder via shared ownership. However, the proposals may well have the opposite effect as housing associations (who are the chief providers of shared ownership housing) are concerned that the proposed changes may make it unviable for them to continue to operate shared ownership schemes.
The key points of the Government’s proposals are:
- The initial share that tenants must buy will be reduced from 25% to 10%
- Purchase of further tranches of equity can be bought by:
- the current means of purchasing additional 10% tranches with a valuation of the property each time, or
- a new means of purchasing 1% of the equity each year, without the need for a valuation. Instead the value of the additional 1% will be computed by reference to the House Prices Indices. To prevent this leading to anomalies, this new ability will be limited to fifteen years’ worth of purchases
- A ten year obligation on the landlord to maintain and repair the property (it is not clear whether this would continue if the tenant has purchased 100% of the equity in the property, but the wording of the announcement implies that it will)
- A new model shared ownership lease aimed at making it easier for tenants to get a mortgage, and
- A reduction in the landlords’ eight week pre-emption period should the tenant wish to sell the property, to a four week “right of first refusal”.
The new changes will apply to all homes built with grant funding from the 2021-26 Affordable Homes Programme and all rented homes built under that programme will include a “Right to Shared Ownership” (with the usual exceptions continuing). The Government also expects local authorities to ensure that any shared ownership homes built via S106 agreements will be on these new terms. Homes being built under the current Affordable Homes Programme 2016-21 are not affected.
Shared ownership has grown in popularity over recent years, although take-up varies across the country depending on the affordability of the model in different regions. The new proposals have been designed to tackle some of the downsides of shared ownership for prospective buyers, to level the playing field across the country and drive an increase in low cost home ownership.
However, housing associations have indicated that their internal administrative costs of processing 1% staircasings together with the ten year period during which they will remain responsible for the costs of all repairs to the property, may make the scheme unviable for them. If so, housing associations may well be deterred from bidding for grant under the new 2021-26 Affordable Homes Programme as all homes built with grant under the programme must give the tenants the “Right to Shared Ownership”.
Moreover, tenants may still find that the rent payable on the property when added to the mortgage repayments are still too much for them to afford.
And lenders too may well have reservations on the impact that these proposals will have on their borrowers and the value of the security for their loans. Traditionally lenders have been reluctant to accept a significant level of shared ownership properties as security due to the uncertain nature of the income stream and the impact of staircasing, and most loans limit the amount of shared ownership properties to between 10-30% of the overall security pool. If all tenants in new homes have the right to shared ownership, it is unclear whether those homes will be automatically treated as shared ownership for the purposes of the loan or only if the right is exercised. It will be harder for borrowers to manage the levels of shared ownership within the portfolio and it is possible that they will seek to amend the provisions in their loan agreements relating to the percentage of shared ownership properties that lenders will accept as security.
It may well be that these issues/concerns lead to the proposals being modified to ameliorate these issues; we shall just have to wait and see.