Over the past decade, there has been a rise in the popularity of affordable housing schemes due to the affordability barriers present in many cities across the UK. The barriers have caused numerous aspiring first-time buyers, to approach housing associations who offer shared ownership schemes to help them step onto the housing ladder. To help tackle the affordability barriers many local governments have pledged to increase housing supply and the Ministry of Housing, Communities & Local Government supports these pledges.
On 28 August 2019 the Ministry of Housing, Communities & Local Government published a discussion paper entitled 'Making home ownership affordable' which seeks to propose a new national model for shared ownership, to enhance affordability and utilise the flexibility the current scheme is designed to offer.
The consultation comes at a time of political instability yet the Government have announced various new measures to tackle the housing crisis and is for registered providers, local authorities, tenants, lenders and all other stakeholders with an interest in social housing to comment on.
Proposed Changes to Shared Ownership
The principal focus of the paper is four key changes that will improve shared ownership for all involved in the scheme.
- A new national model - Shared ownership is a complicated scheme and differs for each registered provider. As such, anything that simplifies the scheme for purchasers is good news. The discussion paper proposes that a new national model of shared ownership be introduced. This will enable lenders to provide more competitive mortgage finance. The issue with this proposal is that a new national model will need to address issues around the tenancy of predominantly leasehold properties and so will need to consider service charge and ground rent - areas over which homeowners have no control. Also a model does not always fit all situations and so an element of flexibility (as we have now save for fundamental clauses) would arguably still be required
- Speeding up sales - As it stands, shared ownership homes are not always instantly sold on the open market. This is as some shared ownership leases include a pre-emption clause. This grants landlords exclusive marketing rights for the first eight weeks of sale and enables registered providers with grant funded shared ownership properties to either buy-back their property or select a new buyer. This results in great uncertainty for the homeowners who do not have control over the process. To help create more certainty the paper proposes that a time-limited right of first refusal is introduced. This will enable registered providers to repurchase the home from individuals in order to resell as shared ownership if there is local demand, therefore ensuring that the property remains affordable.
- Staircasing by 1% shares as opposed to the 10% shares that are currently available - With uncertainty surrounding Brexit, inflation is making staircasing at 10% difficult and so a new 1% model has been suggested. The idea of buying up 1% shares of your home as and when you can afford to, in the same way you might pay extra off your mortgage as and when you can afford to, sounds like a good idea. However, for this to work, the Government would need to address the transaction fees that come when you staircase (e.g. valuation and issuing of a memorandum of staircasing). This includes adopting a new process, which accelerates the valuation procedure at a cheaper price to dealing with legal and remortgaging fees. If these costs remain regularly buying your property in 1% shares may be more expensive than the current 10% increments. As such, the paper therefore seeks your view on what you believe is necessary to support this process.
- 20% discounts for local first time buyers in order to protect local communities
Together with the discussion paper, the government has introduced a change that lets individuals purchasing a property under the Help to Buy: Shared Ownership scheme to take out a 35 year mortgage. Currently, Help to Buy: Shared Ownership owners cannot take out a mortgage that goes beyond 25 years after the property was originally purchased. Although this change means purchasers will have to pay more interest over the life of their mortgage than if they opted for a 25 year mortgage, it opens up the Help to Buy re-mortgage market for lenders and brings lower monthly repayments. This in turn will give purchasers more flexibility in their monthly budget, which could mean the difference in being able to afford to buy and getting out of rented properties.
The consultation closes on 29 September 2019 and responses should completed via the online portal.
For more information contact Aisha Bhailok in our Housing & Regeneration department
via email or phone on 01772 220240.
Alternatively send any question through to Forbes Solicitors via our online Contact Form.