What do the new proposals on shared ownership mean for tenants and registered providers? Nalton Stembari, James Chaplin and James Howard explain.
Shared ownership has played a key role in helping those on lower incomes get onto the housing ladder, since its introduction in the 1970s.
As a part of the government’s strategy towards increasing home ownership, and more than a year after Robert Jenrick’s announcement that there would be a consultation, significant proposals aimed at making shared ownership (and ultimately home ownership) more accessible have now been announced. We explore the government’s proposals and what this means for registered providers (RPs) below.
What are the changes?
Right to shared ownership
Possibly the most radical change is that under the new scheme all housing association tenants in new builds will automatically have the right to buy a share of as little as 10% of their home. However this will not apply to properties constructed through government funding under the current programme which runs until March 2021.
Reduced initial minimum share
To help families buy shared ownership properties the government will reduce the minimum initial stake from 25% to 10%. This means that a family buying a property worth £450,000.00 will only need to obtain a mortgage to acquire £45,000.00 (under the existing scheme it would be £112,500.00). This proposal aims to make the scheme affordable to an estimated 300,000 more households according to the Ministry of Housing, Communities and Local Government.
Reduced staircasing increments
Families will be able to staircase at increments as low as 1%, as opposed to the current 10%. Using the above example, staircasing on a property worth £450,000.00 would require increment payments of £45,000.00 currently, but under the new proposals the same family could increase its share in the family homes with as little as £4,500.00. This seeks to address the imbalance between rising house prices and wages.
The new rules will also prohibit social landlords from charging tenants administration fees on the acquisition of shares when staircasing.
Changes to repair obligations
Social landlords will be responsible for repairs for the first ten years of the shared ownership property. This is aimed at preventing families who may own a very small percentage of the property from having to pay significant repair costs.
More control over resales
Families in shared ownership properties currently have to give their social landlord’s eight weeks’ notice of their intention to sell, allowing the social landlord an exclusive period in which to market the property to potential shared ownership buyers. This can lead to unnecessary delays and the new proposals intend to halve the notice period where the family is seeking an open market sale.
What are the potential issues?
Although the new proposals are aimed at making the housing market more accessible, some concerns have been raised within the social housing sector.
Will social tenants be able to afford the switch to shared ownership?
The change from paying affordable rent (which covers all costs) to paying both a mortgage on the share of the property owned by the tenant and rent on the share retained by the social landlord, together with the unpredictable service charge costs might make the switch from social rented to shared ownership difficult for some tenants to afford. Some tenants may consider themselves better off with the certainty of the affordable rent and the security of knowing that they can require the landlord to carry out any repairs to the property.
Changes to planning requirements
Under section 106 agreements, the tenure of social housing is a planning requirement with specific numbers of properties allocated for social rented and shared ownership respectively. The new proposal allowing the switch from social rented to shared-ownership will need to be addressed in the social housing obligations contained in section 106 agreements if these proposals go ahead.
The potential cost to the social housing market
The National Housing Federation has raised concerns that the proposals could worsen the housing crisis. Extending the right to shared ownership and allowing the tenure of affordable housing to be changed risks the loss of more social rented homes.
What does this mean for RPs?
Whilst social housing reforms are inevitably a subject of hot debate, it will be interesting to see if the government takes into consideration the concerns that have been raised from within sector.
The uncertainty that these changes create could also impact on registered providers’ business plans and consequently their ability to borrow. It may be difficult for registered providers to predict revenue streams from social rented properties with the potential for them to become share ownership properties.
The proposals are still subject to further technical consultation, and more detail is required in order to better understand how these changes will impact on the social housing sector.