On 'Tenurehooks' - Will Shared Ownership be a viable product?

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Article

11 September, 2020

Homes England have announced significant changes to the shared ownership programme with the introduction of a new shared ownership model which will come into effect for all new shared ownership homes delivered under the new Affordable Housing Programme 2021 to 2026. Whilst the new model form lease is yet to be published, the proposed changes are government's response to a consultation which commenced in August 2019 to make the tenure more attractive for first time buyers. These changes are welcomed by those eager to get onto the housing ladder, but concerns have been raised over the management and viability of the programme with the changes placing more obligations on Registered Providers as landlords.

The new changes will see the initial share purchase under the current model form lease being reduced from 25% to 10% and shared owners will also be able to staircase in 1% increments for 15 years. This will allow shared owners to acquire 15% of the property and by using this route they will pay reduced fees. Those wishing to purchase larger shares can still do so with the minimum additional share purchase reducing from 10% to 5%. This could result in an increase in applications for staircasing to the Registered Providers. For the shared owner it means one stop closer to owning their dream home by using an affordable route, with lower deposits and spreading out the cost. The proposed new model form lease will also bring about a change to the current nomination period on assignments, which will reduce the period from 8 weeks to 4 weeks from the date the Registered Providers receives the shared owner's notice of intent to assign. After these 4 weeks the shared owner will then be free to sell on the open market. This means that those managing the assignments on behalf of Registered Providers will need to review their current processes and have robust measures in places to meet these new deadlines if they wish to make any nominations. Good news for the shared owner, as it is less time to wait before progressing the sale and being able to put the property on the open market.

One of the key changes and a change which will have a big financial impact on Registered Providers will be the introduction of new obligations on them to meet the costs of any maintenance or repair during a 10 year period. This obligation to meet costs of repairs and maintenance will be in addition to any repairs or maintenance covered by the new building warranty to cover works which will not be covered and this is leading some to question whether this tenure under the new AHP will be financially viable. Registered Providers will need to carefully consider the financial implications and impact on their financial performance when considering whether to offer new shared ownership homes. Many Registered Providers will use the profits made from the sale of shared ownership homes to cross-subsidise rented homes. The extent of the impact that this will or could have is not yet known and a further technical consultation will be produced once the new model form lease has been published.

Understandably, this new policy has caused fears within the industry with Catherine Ryder, director of policy and research at the National Housing Federation stating that "it's positive that government has put such a strong focus on shared ownership, recognising that it is a key route onto the housing ladder for people who otherwise would not be able to afford their own home. However, this new model represents a big change and we are worried it could affect the viability of new shared ownership homes". Catherine goes on further to say that the National Housing Federation "will be looking to influence the detail for example on grant rates, to make sure shared ownership remains a viable product to building and an attractive product for people looking to buy".

In addition to the changes being introduced to the model lease, the AHP is set to introduce a new Right to Shared Ownership. The main features of the scheme will allow eligible tenants living in new rented homes delivered by the AHP 2021-20226 the opportunity to purchase their home under shared ownership terms and using the new model form lease. The tenants, like with the standard shared ownership scheme, will then be able to purchase additional shares in the property. The Right to Shared Ownership will apply as a condition on grant funding to all social and affordable rented homes, other than those where specific exemptions apply. Those exceptions being:

  • Local authority homes;
  • Homes in designated protected areas and rural exemption sites;
  • Homes for older, disable and vulnerable people;
  • Alms houses;
  • Homes where the landlord is a co-operative housing association; and
  • Homes where the landlord or freeholder is a Community Land Trust.

Again, whilst this is positive news for tenants, Registered Providers are left with questions on how this will also impact their financial performance as their social and affordable rented homes are a regular stream of income and provide security for lenders.

We're already in uncertain times and these proposed changes pose risks for Registered Providers, but is this just what we need to keep the housing market going following a global pandemic? Registered Providers have already seen a spike in demand for shared ownership properties, and therefore an enhanced shared ownership model with lower deposits and more flexibility in purchasing shares and assigning leases could be the answer.

For further details about the Affordable Homes Programme 2021 - 2026 please review our article - A Big Boost for Affordable Homes.

For more information contact Shauna Helyer in our Housing & Regeneration department via email or phone on 01254 222 395. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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