Changes to shared ownership

In all of the current political turmoil going on in Westminster you would be forgiven for missing the Government’s announcement of a new consultation on Shared Ownership.  In an unintendedly muted announcement the Housing Secretary informed us all that Shared Ownership was in need of reform and subsequently launched a consultation on the Housing, Communities and Local Government’s website.

The three major proposals for reform are as follows:

• A reduction in the minimum share that a shared owner can acquire from 10% to 1%;
• A consideration to remove the nominations clause to enable shared owners to sell on the open market without first offering the Property back to the Landlord;
• A new model for Shared Ownership that would cut across all forms of Shared Ownership whether they are grant funded or privately funded, including consideration for properties which fall within Designated Protected Areas.
• This consultation follows the same pattern as the wider leasehold reform agenda about making it easier and cheaper for homeowners. Here the target is the high cost of Staircasing primarily with the ‘problem’ of a multitude of Shared Ownership lease models in existence supposedly complicating the market.

A reduction in the minimum share

• Whilst it is a noble effort to make it easier for shared owners to acquire a greater interest in their property, the resulting reduction in annual rent compared to the cost of increasing their ownership may not be cost effective in the short-term. This is because a 1% reduction in the amount of rent payable (likely to be no more than tens of pounds per year) is nothing when compared to the cost of increasing ownership by 1%, on average, of £2,500.00 (assuming the average price of £250,000.00). This also assumes that shared owners can either save this money or will have cash available to cover this cost since it will not be cost effective to obtain a mortgage for such a small amount of money.
• There is also the issue of administrative and legal costs associated with Staircasing transactions. If such small scale Staircasing is to take place there will have to be a consideration for not involving lawyers to record such payments. Somewhat surprisingly (given the Government’s current crusade against unreasonable fees and charges) this consultation does not address any concerns (real or perceived) about administration fees for Staircasing.
• It is also worth noting that Staircasing documents are not currently registrable at the Land Registry and such small increments in ownership could make it difficult to track the current percentage owned by shared owners on future transactions. Registered Providers are going to have to ensure that they have accurate up to date records of ownership as they will not be able to rely on their lawyers to confirm any Staircasing transactions.
• Despite this, I can see there are benefits to being able to acquire small amounts of equity over time. For example, saving 1% of the value of the Property will be much easier than saving 10% and a steady increase of the percentage share owned would be much more affordable. Although, it is worth noting that it could take a whole life time to acquire the full market interest in a property at 1% per year! It is not to say that smaller shares and encouragement for shared owners to buy those shares is a bad idea, but thought needs to go into how such shares are acquired, the process involved and the associated costs. Perhaps some sort of assisted saving scheme by Registered Providers to help encourage shared owners to save towards a greater interest might be a welcome plan.

Removal of the Nominations Clause

With the property market appearing to stagnate over the ever-looming Brexit, the proposal to remove the nomination provisions to allow Shared Ownership properties to be sold on the open market could be a positive step forward.

The nominations process is commonly viewed as an unnecessary complication to the selling process for Shared Owners who expect to simply offer their property to an estate agent and sell it alongside other properties in the area.  This may be as much down to not understanding the process and that the nominations process can result in quicker sales for lower administration fees that the traditional agent’s commission.

It also misses the point that these are intended to be affordable housing and the nominations process is used by Registered Providers to ensure that the affordable housing remains affordable and is sold to those in need.  Removing or shortening the nominations process may result in affordability declining or people moving into affordable properties when they are not necessarily in housing need.  It may also conflict with planning requirements on affordability.

The proposal is to insert a form of right of first refusal to the Registered Provider who will have to buy the property back, presumably.  This will need to ensure that there is sufficient time to secure a buyer so Registered Providers do not have to fund these buy-backs solely from their own reserves.  Presumably they may be offering these properties back to the market as new leasehold properties meaning that the former share may have to be re-purchased but a lower share offered back to the market.

Not considered properly rather than increasing the supply of affordable housing, this policy could have the reverse effect of reducing reserved to build more affordable housing!

A new model for Shared Ownership

• With regard to a new form of Shared Ownership that is generic across all providers this seems to be a good idea and certainly one that would be welcomed by many. It is worth remembering that we already have the model lease, but that this only binds grant funded schemes (although most will use the same form across all estates as it is easier from an administrative point of view), so having a standard form of lease across all types of scheme would add certainty to the market place and would hopefully simplify the process of agreeing the lease since many of its clauses would be prescribed. I do not think we should go back to the old standard form leases of the Housing Corporation days, but having a standard form of fundamental clauses across all estates will make selling Shared Ownership easier and less confusing for buyers.
• The Consultation is also considering streamlining the model lease to include properties located in Designated Protected Areas. This was a policy brought into effect some ten years ago and which is, on the whole it would seem, not well liked often circumvented and has resulted in a dwindling mortgage market for such leases to the point now there are only a handful of providers. Swapping this for some sort of right of first refusal and/or local area connection for any buyer might achieve the intended aim of keeping these properties affordable for local people.

Conclusion

• All in, the consultation is a propitious review of shared ownership and the idea of having a single model of Shared Ownership is very much welcome (provided it does not become too prescriptive). I imagine making Shared Ownership properties easier to sell will be favourable to existing shared owners and will also most likely encourage new buyers to purchase a Shared Ownership property in the knowledge of there being less restrictions. I am a little sceptical that there truly is a market for 1% Staircasing and believe that it would need to be coupled with a reciprocal reduction in the cost of Staircasing to be effective, however, the very fact that Shared Ownership is receiving some much needed attention from the Government is always welcome.
• The consultation will close on 29 September 2019.

This article has been co-written by Rachel Shepherd and Chris Carr.