New Shared Ownership Scheme – A good idea?
Douglas Oliver
The Government has come up with proposals to change the Shared Ownership regime and is focusing on trying to make it more buyer-friendly across the board in line with their belief that Home Ownership is something that should be available to everyone, if possible. The changes affect grant funded housing schemes for 2021-2026, commencing April 2021.
To assist buyers onto the housing ladder, the initial tranche that has to be acquired is to be reduced from 25 to 10%.
Further purchases of equity can be bought in either:
- additional 10% tranches involving a valuation, or;
- a simplified method of acquiring an additional 1% each year without the need for a valuation, with the purchase price being calculated by reference to the House Prices Indices and this would be available for a period of 15 years worth of purchases.
There is a proposal to require the Landlords to repair the property, but it is not quite clear how this will work if there has been 100% staircasing. However, the obligation to repair is only for a period of 10 years from the initial purchase.
Naturally, this involves a new model shared ownership lease which is also going to be aimed at making shared ownership more mortgage friendly i.e. easier for buyers to get mortgages and as part and parcel of that the landlords 8 week pre-emption period is going to be reduced to a four week right of first refusal.
In practice the pre-emption is very rarely exercised in my experience and I do not think reduction to a four week period will be significantly detrimental to Housing Associations.
However, as usual with Governments who focus on trying to achieve one objective, they have not in my opinion taken into account the effect that this will have on the Housing Associations (which the Government clearly thinks can bear the extra burdens).
For example there are very significant administrative costs in processing a staircasing application which will be virtually the same for a 1% purchase as it would be for a higher percentage. The receipt could be little more than the cost of getting it.
The cost of repair being loaded on to Association for ten years is quite onerous, although one would hope NHBC of similar cover will lighten the load in new build.
However, there is the more serious effect from a final proposal where all tenants of Housing Associations will be entitled to a “Right to Shared Ownership”. This means houses outside the new build warranty can become Shared Ownership whether the Association like it or not and older houses are more likely to need repair. The association will get a capital receipt (possibly only 10%) and will have to repair whilst receiving a reduced rental income.
The “Right to Shared Ownership” may well have a disastrous effect on the value of Housing Associations stock which I do not think the Government have taken into account. Shared Ownership does not produce the same income for Housing Associations as rented stock albeit that there is a capital receipt so that, generally, shared ownership units are thrown into property portfolios to be mortgaged as a kind of “make-weight”.
The effect of giving the “Right to Shared Ownership” to every tenant could mean that valuers down value the Housing Associations rented stock which means that the Housing Association will only be able to raise a limited amount of money against that stock compared to what they could raise before the changes.
These changes, in my view, will deter many Housing Associations from applying for grant funding in the 2021-2026 Affordable Homes Programme as not only is the Shared Ownership aspect itself less attractive to the Housing Association but they will be wary of the to damage the capital value of their (initially at least) non-Shared Ownership stock that they construct under that regime.
Associations that can afford to do so may well choose to develop outside the grant funded regime and the rest will think carefully before committing. The net result, therefore, may well be that less affordable housing is constructed overall and that a greater proportion of that affordable housing will be constructed outside the grant funding regime so that the aim of making home ownership more immediately assessable by virtue of these changes may, ironically, have exactly the reverse effect.
Time will tell and the Devil, as usual, will be in the detail.
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.