This paper provides a guide to some reliable sources of information to help answer the most common constituents' housing questions.
Documents to download
Shared ownership (England): the fourth tenure? (1 MB , PDF)
Housing policy is devolved and there are different rules around shared ownership in Wales, Scotland and Northern Ireland. This briefing paper focuses on shared ownership in England and provides links to information on other parts of the UK.
What is shared ownership?
Shared ownership (sometimes known as ‘part buy, part rent’) enables people to buy a share of a property (usually between 25% and 75%) and pay a subsidised rent on the remaining share. Purchasing a share in a property requires a smaller deposit and mortgage, thereby making it a more affordable route into home ownership.
Shared ownership properties are currently developed using a mix of private finance and grant funding through the Government’s Shared Ownership and Affordable Homes Programme (SOAHP) 2016-21 or developer contributions via planning obligations (section 106 agreements). It is this subsidy that enables housing providers to build new properties for shared ownership and charge a reduced rent on their share of the equity. Most shared ownership homes are delivered and managed by housing associations. Although, some local authorities and private developers also offer shared ownership schemes.
Shared ownership properties are always leasehold. The precise terms and conditions of shared ownership schemes can vary by housing provider. However, lease agreements normally include: the ability to buy further shares in the property over time (a process known as ‘staircasing’) until eventually attaining full ownership; the shared owner taking on full responsibility for repairs and maintenance of the property; and restrictions on the way in which the property can be used and resold. Several issues identified by shared owners appear to arise from the fact that they are long leaseholders – many of their concerns are shared with other long leaseholders who do not own on a shared ownership basis.
How large is the shared ownership sector?
Shared ownership is not a widespread tenure. There are approximately 157,000 households living in shared ownership homes in England. This represents less than 1% of all households. Demand for shared ownership varies across the regions, with demand highest in areas where affordability is most stretched – largely in the south of England.
Despite its relatively small market share, the supply of shared ownership homes has increased substantially in recent years, rising from around 4,080 units completed in 2015/16 to around 17,020 in 2018/19. Shared ownership also represents an increasing proportion of the overall supply of affordable housing, accounting for 34% of new affordable housing supply in 2018/19, up from 23% in 2015/16.
Government policies to extend shared ownership 2010-19
The 2015 Conservative Government committed to deliver 135,000 shared ownership properties by 2020/21 and subsequently implemented a number of measures intended to take shared ownership provision “to the next level”, including:
- making up to £4.1 billion of capital grant funding available through SOAHP 2016-21 and opening the programme up to the commercial housing sector;
- broadening the eligibility criteria for shared ownership, including raising the maximum household annual income limit to £80,000 (£90,000 in London); and
- allowing households to move from one shared ownership property to another.
Whilst delivering shared ownership was the primary focus of SOAP 2016-21, the Housing White Paper (February 2017) marked a shift in policy to delivering a wider range of affordable housing, including for social and affordable rent. Following the Autumn Budget 2017, the total budget for the programme was £9.1 billion to 2020/21. The Affordable Homes Programme 2021-26 marks something of a return to a focus on shared ownership (see below).
In the 2018 Budget the Chancellor announced that Stamp Duty Land Tax relief for first-time buyers would be extended to all first-time buyers of shared ownership properties valued up to £500,000. Alongside the 2018 Budget the Government published a call for proposals to lever private sector funding and capacity to deliver into the shared ownership sector.
Barriers to extending shared ownership
Despite the growing popularity of shared ownership, it is still far from being a mainstream tenure. A number of barriers to extending shared ownership have been identified:
Complexity – shared ownership is a complicated hybrid tenure, which can be difficult for potential buyers, providers and lenders to understand. This complexity is compounded by variations in product names used by different providers and the range of additional eligibility requirements across different localities.
Affordability – in a rising housing market it becomes more expensive to buy further shares in the property and staircasing itself involves additional costs for the shared owner, including valuation, legal and mortgage fees. The increasing costs of shared ownership have made it more challenging for households to progress to full ownership. Around 4,000 households staircased to 100% ownership in 2018/19, equivalent to 2.3% of all shared-equity homes owned by housing associations.
Mortgage availability – limited mortgage availability and less favourable interest rates on shared ownership mortgages are regarded as a factor limiting the uptake of shared ownership.
Limited demand in some areas – demand for shared ownership varies around the country, as does the financial viability of development. Demand is greatest where affordability is most stretched – largely in the south of England. In some areas the Government’s Help to Buy: Equity Loan scheme is financially more attractive to first-time buyers.
Reselling – the process for selling a shared ownership property is not straightforward. Furthermore, the secondary market is small which can make it difficult to match buyers and sellers or move within the tenure.
New national model for shared ownership
Between 28 August and 29 September 2019 the Government consulted on proposals for a new national model for shared ownership with the objective of making it “fairer, more affordable, and more consumer-friendly as well as a better model for the market to deliver”. The proposals are intended to address some of the barriers to extending shared ownership outlined above.
The Conservative Party Manifesto 2019 set out the Party’s ambition to increase home ownership – “one of the most fundamental Conservative values”. Extending shared ownership is central to meeting that ambition.
On 8 September 2020 the Government published its consultation response, which confirmed the key features of the new model for shared ownership:
- The minimum initial purchase share in a property will be reduced from 25% to 10%.
- New shared owners will be allowed to buy additional shares in their home in 1% increments for up to 15 years, with heavily reduced fees. It will still be possible to staircase in larger increments with the minimum additional share purchase reduced from 10% to 5%.
- There will be a new 10-year, repair free period, during which maintenance and repairs costs will be met by the housing provider rather than the shared owner.
- The new model will give shared owners the option to end the housing provider’s eight-week nomination period at four weeks if they would prefer to pursue an open market sale of their property.
The Government intends to publish a further technical consultation on the implementation of the new model for shared ownership in due course.
The new national model for shared ownership will apply to shared ownership homes delivered through the Government’s Affordable Homes Programme (AHP) 2021-26 from 1 April 2021. Shared ownership housing delivered through the planning system will also be expected to be based on the new standard model.
The new AHP 2021-26 will provide £11.5 billion grant funding over five years and is expected to deliver up to 180,000 new affordable homes. The Government expects that around half of these new homes will be available under the new model for shared ownership.
New right to shared ownership
On 17 October 2019 the Government confirmed its intention to introduce a new Right to Shared Ownership. Eligible tenants in new housing association properties delivered with Government grant will have an automatic right to buy a minimum 10% share of their home, with the ability to buy further shares over time and staircase to full ownership. Unlike Right to Buy, the scheme does not involve a discount for the tenant. The requirements regarding the rent, service charges, maintenance and repairs for the Right to Shared Ownership will be the same as for the new model for shared ownership.
Certain categories of property will be exempted from the scheme, including: local authority homes; homes in designated protected areas and rural exemption sites; and specialist homes for older, disabled and vulnerable people.
The Ministry of Housing, Communities and Local Government (MHCLG) has published Right to Shared Ownership: initial guidance for registered providers (8 September 2020) which outlines the main features of the scheme, including eligibility criteria and exemptions from the scheme.
A Right to Shared Ownership will be available on the vast majority of new rented homes delivered through the Affordable Homes Programme 2021-26.
The Government has also committed to work with housing associations on a voluntary basis to determine what offer could be made to those in existing housing association properties.
From a consumer perspective, the Government’s proposals to simplify and improve shared ownership by making it easier for shared owners to staircase and sell their home and introducing a standard shared ownership model for all providers have been welcomed.
Reducing the minimum initial share purchase to 10%, enabling shared owners to staircase in 1% increments for 15 years with reduced fees, and making landlords responsible for maintenance and repair costs for the first 10 years should help to make shared ownership a more affordable route into home ownership and broaden access to the tenure.
However, the social housing sector is concerned that the new model for shared ownership risks undermining the financial viability of development for shared ownership, which could impact on housing associations’ capacity and appetite to deliver shared ownership. Associations are particularly concerned about the impact of shifting the 10 year repair and maintenance obligation from the shared owner to the housing provider. The National Housing Federation, which represents housing associations, is concerned about the “significant challenge” the new shared ownership model poses to the sector and has called on the Government to carry out a “full and genuine consultation” on the proposals
Some housing providers have suggested that the lower entry threshold of a 10% share risks encouraging some low-income buyers to take on shared ownership when they might not be able to sustain it in the longer-term. This risk might be a concern for mortgage lenders. There is also a concern that the new model could create a two-tier system for shared ownership, with buyers rejecting existing shared ownership properties in favour of properties built under the new model.
The Government’s proposal to introduce a Right to Shared Ownership for tenants in new housing association properties has been met with scepticism by the social housing sector, with concern that it could impact on housing associations’ financial strategies. It has also been suggested that take-up by social housing tenants could be low because of the increased financial liabilities and potential difficulties in securing a mortgage.
Documents to download
Shared ownership (England): the fourth tenure? (1 MB , PDF)
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