Significant changes to the shared ownership system, including staircasing in as little as 1% (or even just £250) increments, could be on the way.
The proposals, contained in a Government discussion paper Making home ownership affordable, are based around three key principles:
The Government has reiterated its commitment to tackling affordability challenges in the housing market and supporting people onto the property ladder. These proposals are the latest in a series of recent measures intended to help achieve that aim.
Shared ownership currently allows buyers to purchase a 25-75% share in a new build home from a registered provider and pay a subsidised rent on the remainder. Purchasers can progress towards full ownership of their home by buying additional shares in 10% increments (known as staircasing).
The Government believes owners' ability to staircase has been hampered by rising property values, the costs of maintaining the home and the administration and costs involved in buying further shares. House price inflation over recent decades now means that buying an additional 10% stake is out of reach for many owners.
Additionally, the Government's view is that owners saving up to buy another 10% share face a great deal of uncertainty around house price inflation. If values are rising whilst they save, they effectively do not know what value of savings will ultimately be needed to buy that 10% stake.
Accordingly, the Government proposes to reduce the threshold for the purchase of further shares to a much lower level, citing 1% as an example. In the future, it is suggested that technology might permit owners to invest seamlessly in their home in just £250 increments, in the same way they might transfer savings to a bank account.
These proposals would undoubtedly make it more accessible for owners to get a step closer to full ownership. Such small increments would open up the possibility of staircasing to owners for whom it is currently a distant dream. Many would be able to staircase from savings rather than having to borrow further funds from a lender.
The changes would also improve buyers' perception of shared ownership as a genuine and realistic way of owning their own home. This is particularly the case in view of the well-documented affordability challenges in the housing market and the planned winding down and closure of the Help to Buy scheme.
Registered providers could also benefit by receiving additional capital through staircasing which they can then reinvest into new affordable housing developments. Although each capital receipt might be small, if many owners take up the opportunity to staircase at a lower level, the sums would add up.
The key will be finding ways to reduce the administrative burden and costs of staircasing so that these benefits are not outweighed by costs and red tape.
One way to do this might be to remove the need for a market valuation at the time of staircasing by linking the home's value to a relevant inflationary index. Although quick and straightforward to operate, index-linked valuations inevitably bring with them an element of inaccuracy. If the same index is to be used nationwide, it will be impossible to select one which accurately reflects house price inflation in each particular city or region of the country. Either the owner or the registered provider might be prejudiced by any such inaccuracy as against the true market value.
Currently the shared ownership model lease includes a requirement that the landlord or registered provider has the exclusive right to market the property for sale for the first eight weeks.
Government sees this as a cumbersome process which causes delay in sales of shared ownership homes. They are proposing to allow shared ownership homes to be sold on the open market. To ensure the home remains affordable if required, there will be a right of first refusal for a limited period in favour of the registered provider landlord. This would allow them to buy the property back and sell it to a new shared owner.
The current system of the registered provider marketing the property gives the registered provider an element of control over who acquires it. They can ensure it goes to a buyer who needs help getting onto the property ladder and fits with the terms of any nominations agreement they have in place with a local authority.
Owners will no doubt welcome the ability to sell a property more quickly and simply. However, registered providers will be keen to ensure the new proposed right of first refusal does not significantly dilute their control over the change of ownership process.
Government believes there should be a single model for shared ownership that all providers, whether public or private, adopt. Doing so will, they say, provide more confidence for all stakeholders and, in particular, allow lenders to provide more competitive mortgage finance.
Currently, despite the existence of the model form of shared ownership lease, providers may offer schemes which adopt different terms if that better suits their business needs. These proposed changes would mean less flexibility for providers, who would be forced to adhere to a more rigid set of requirements.
However, as the market becomes more expensive and Help to Buy is wound down, there needs to be a viable alternative for homeownership. Shared ownership can provide that but lenders do need to be on board and offer competitive mortgages by truly understanding the shared ownership market.
The consultation closes on 29 September.
Contributor: Matt Battensby
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.
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