This House of Commons Library briefing paper outlines temporary measures to assist homeowners to manage their mortgage payments during the coronavirus (Covid-19) outbreak. It considers lenders’ obligations towards homeowners who are struggling with their mortgage payments, outlines possible sources of advice for mortgagors, and discusses the mortgage support schemes that were introduced in response to the 2008 financial crisis.
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.
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 than buying at the full market price.
Shared ownership properties are 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.
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.
Shared ownership homes bought in 2018/19 had a median value of £240,000. The median initial stake purchased was £100,000. Buyers had a median initial deposit of £12,800, with the remainder of the initial stake covered by a mortgage.
Government policies to extend shared ownership
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.
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.
New national model for shared ownership
In August 2019 the Government launched a consultation 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 key elements of the new model are:
- Making it easier for people to increase their share of the property – by allowing shared owners to increase their share of the property in smaller increments (for example, 1%) rather than 10% at a time. The Government also intends to reduce the initial minimum share purchase required from 25% to 10%.
- Giving shared owners more control over the resale process – by removing the ‘pre-emption’ clause in the current shared ownership model lease which gives the housing provider the exclusive right to market the property for the first eight weeks of the sale.
- Introducing a standard shared ownership model for all providers to adopt – to reduce complexity and make it easier for consumers to understand; encourage new providers to enter and grow the market; and encourage lenders to provide more competitive mortgage finance.
The Government’s consultation closed on 29 September 2019 and it is currently analysing feedback.
New right to shared ownership
On 17 October 2019 the Government confirmed an intention to introduce a new right to shared ownership. 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 increase that share over time, up to full ownership. The Government also committed to work with housing associations on a voluntary basis to determine what offer could be made to tenants in existing housing association properties. Confirmation that this proposal will be taken forward was provided in response to a Parliamentary Question on 13 January 2020.
In general, the Government’s proposals to simplify and standardise the shared ownership model have been well received by stakeholders. Although, some commentators have criticised the Government for not focusing on higher priority housing issues. The Opposition criticised the proposals as “meaningless”:
Shadow housing minister Sarah Jones said: “Tinkering with the details of shared ownership is meaningless when lack of investment from government means low-cost homes for ownership simply aren’t getting built…”
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.
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.
Documents to download
Shared ownership (England): the fourth tenure? (1 MB, PDF)
Constituents who are trying to sell/re-mortgage leasehold flats in blocks are asking about a new requirement for an EWS1 form. This page explains what the EWS process is and associated issues.
It is becoming increasingly common on new-build private estates for freeholders to be required to contribute to the maintenance of the estate’s communal areas and facilities. This practice has been referred to as 'fleecehold'. This short paper provides background on the issue and sets out the Government's proposed reforms. The paper mainly covers England - section 7 covers Wales.