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Shared ownership could do with a refresh – but we don’t need to totally reinvent the wheel
The government’s overhaul of shared ownership contains some positive aims, but care must be taken not to damage a model that has been built up over 40 years, writes Ruth Barnes
It is interesting that in the year that shared ownership celebrates its 40th birthday, the government announces a new national model. To be fair, at 40, it probably needs a refresh.
I remember working on some of the early shared ownership purchases in the mid-1980s with what was then Addison Housing Association (now Notting Hill Genesis).
Back then, I acted for purchasers with the Notting Hill branch of Abbey National usually sourcing the mortgage offers.
How things have changed. What was then a little known and not fully understood tenure is now a leading one with more mortgage lenders participating than ever before. But it has taken 40 years to get this far. So why change it now?
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The consultation paper has a number of aims.
The first is to make it easier for people to increase their share of the property. In terms of cutting costs, apart from valuations, one of the main costs is legal fees. Would shared ownership leaseholders need a lawyer to purchase an additional 1%?
If a very small percentage is involved, then possibly not. As long as there is no decrease in the share owned, a mortgage lender should not need to be involved in the process. And interim staircasing does not need to involve any change to the lease or at the Land Registry.
So arguably there is no need for a lawyer as long as good products that provide a record and evidence are developed.
However, as soon as any further borrowing is involved then leaseholders would need a lawyer, as would be the case on a final staircasing.
It also seeks to make it easier for people to sell their home. The right of first refusal assumes that housing associations have a seemingly bottomless pit of funds available on demand, which is probably not the case.
The plans also seek to introduce a standard model for all providers. Most shared ownership leases granted by housing associations follow the relevant current model. ‘Protected area’ leases are different but the differences are straightforward and, frankly, few. Whether there are tangible benefits in using these leases, I do not know.
I would normally advise a private provider to use the fundamental clauses in the model lease as this enables them to confirm to their buyers and their buyers’ lenders that the lease substantially follows the model lease.
Effectively this automatically makes a lease mortgageable. If a private provider departs from the model lease there is usually good reason. How would the Ministry of Housing, Communities and Local Government (MHCLG) force private providers to adopt a model lease?
While the model leases would definitely benefit from a refresh, care needs to be taken not to completely reinvent the wheel. It has taken 40 years for shared ownership to get this far.
A couple of other points stand out for me.
In describing the challenge in the consultation paper, MHCLG suggests that “the main challenge for consumers is saving the money required for a 10% share” acknowledging that this is exacerbated by house price inflation and “various costly fees” involved. One such fee, certainly in London, will be Stamp Duty Land Tax (SDLT).
“While the model leases would definitely benefit from a refresh, care needs to be taken not to completely reinvent the wheel. It has taken 40 years for shared ownership to get this far”
Prior to the introduction of the current relief for first-time buyers, many buyers will have opted to pay SDLT by instalments rather than up front because the cost of paying up front was prohibitive.
As a result, if a staircasing takes their share over 80%, buyers will face a hefty SDLT bill. Perhaps some further reform of SDLT on shared ownership is also needed, not least because if the paying by instalments option is chosen and staircasing tranches can be as low as 1% things could get complicated.
Second, while shared ownership thrives in London and the South East there has historically been less of a take-up elsewhere.
In her report Exploring Shared Ownership Markets outside London and the South East (January 2019) commissioned by the Cast Foundation, Alison Wallace concludes: “The research indicated that differing institutional responses to local markets shaped the volume and nature of any new shared ownership supply, including the equity stakes purchased.
“Providers reported a number of barriers to the expansion of shared ownership including land, competition between existing and new local authority, housing association and private providers and market awareness.”
The proposed changes would do little to address any of these, I fear.
Ruth Barnes, partner, residential development sales team, Winckworth Sherwood