25 November, 2020
Following the Making Home Ownership Affordable discussion paper in 2019, the government has launched a consultation on the new model to be introduced next spring. The consultation fills in some of the missing detail as to how the new model will work in practice.
The government has stated that approximately 50% of the 180,000 new homes delivered in the next 5 years will be affordable homes, with the majority being shared ownership. The reason for the overhaul of the current model is to allow greater access on to the property ladder for those with low incomes.
The government has set out the key changes as follows:
i. Reducing the minimum initial share from 25% to 10%
This will allow those who are unable to save the initial deposit needed to buy a smaller share in the property. The government has advised that purchasers should still aim to buy the maximum percentage that they can afford, this does not need to be rounded to the nearest 10%.
The government has acknowledged the risk of alternative or unsecured lending by specialist lenders with unfair terms and has asked for views in the consultation as to how this can be prevented.
ii. Introducing a new gradual staircasing offer, to allow people to buy additional shares in their home in 1% instalments with heavily reduced fees
Under the current model, the leases generally require the leaseholders to staircase in shares of 10% and require a registered Royal Institute of Chartered Surveyors (RICS) valuation to determine the premium. The new model will allow the premium for a 1% share to be based on a valuation which will be linked to the purchase price. The Landlord will use the House Price Index (HPI) data and property type to provide an up to date valuation at least once each year, which will be valid for three months. This offer will be available to leaseholders for a minimum of 15 years.
Landlords will be prevented from charging any administration fees relating to the valuation or staircasing. As leaseholders will be more likely to raise funds to purchase 1% shares, this should also avoid mortgage fees, although the mortgage lender will need to be notified of the additional share purchased.
Leaseholders will still be able to staircase in larger shares using the current staircasing model, although the minimum share will be reduced from 10% to 5%.
An important question raised in the consultation asks whether there is "a risk that 1% gradual staircasing will conflict with housing associations charitable obligation to sell assets at best value?"
iii. Introducing a 10-year period during which the shared owner will receive support from their landlord to pay for essential repairs
Leaseholders are currently responsible for all maintenance costs for their property, regardless of the share owned. The new model will allow leaseholders to avoid large invoices for unexpected repairs and instead save to allow additional staircasing.
The government has advised that essential repairs relate "only to the external fabric of the building and structural repairs to walls, floors, ceiling and stairs inside of the property" and will only apply to new homes for the first 10 years after it is built, they do not include repairs covered by the New Home Warranty. A maximum of £500.00 can be recovered each year, although the leaseholder can roll over one year's worth of unclaimed costs to the following year. It will be important to ensure that the leaseholder is not at fault in causing the reason for the costs to be recovered, it will be for the Landlord to ensure that the claims are genuine.
Landlords will be unable to include budgets for essential repairs in the sinking fund contributions for the first 10 years as they cannot be used. Instead, they will need to factor in these costs when considering the viability of schemes.
iv. Giving shared ownership leaseholders (shared owners) more control when they come to sell their home.
The current model allows the Landlord 8 weeks to nominate a
buyer before the property can be sold on the open market. The
new model will allow leaseholders to state after 4 weeks that they
wish to sell on the open market, avoiding any unnecessary delays.
The government has announced that any shared ownership homes delivered with section 106 developer contributions will follow the new model. There will be a transitional period to ensure that the pipeline of any developments will existing planning applications will not be delayed. Local authorities will be asked to be flexible in accepting different tenures on these developments.
Following the earlier announcements in relation to the new model, many housing associations and other affected bodies have already raised concerns about the plans. The additional costs to Landlords will need to be factored in considerations regarding the viability of potential shared ownership schemes. Although it is clear that the new model will open the housing market to more purchasers, it is essential that the effect on housing associations is considered carefully and the potential issues, in particular costs and charity status dealt with before launching next spring.
The consultation closes at 11.45pm on 17 December 2020.
Further information and how to respond can found at- New model for Shared Ownership: technical consultation - GOV.UK (www.gov.uk)
For more information contact Zayna Ibrahim in our Housing & Regeneration department via email or phone on 01772 220226. Alternatively send any question through to Forbes Solicitors via our online Contact Form.