Shared ownership (England): the fourth tenure?

Housing policy is devolved and there are different rules around shared ownership in Wales, Scotland and Northern Ireland. This 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 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 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’); the shared owner taking on full responsibility for certain property costs; and restrictions on the way in which the property can be used and resold. Most shared ownership homes are delivered and managed by housing associations.

How large is the shared ownership sector?

Shared ownership is not a widespread tenure. There are approximately 202,000 households living in shared ownership homes in England. This represents less than 1% of all households. Demand varies across the regions, with demand highest in areas where affordability is most stretched – largely in the south of England.

After 2010, the Coalition and Conservative Governments introduced a range of measures intended to extend share ownership. The 2015 Conservative Government committed to deliver 135,000 shared ownership properties by 2020/21.

The supply of shared ownership homes has increased in recent years. Around 4,080 units were completed in 2015/16, rising to a peak of around 18,220 in 2019/20 and falling slightly to 17,100 in 2020/21. In total, approximately 76,500 new shared ownership homes were delivered between 2015/16 and 2020/21.

New national model for shared ownership

Following consultations in 2019 and 2020, the Government announced a new national model for shared ownership which is intended to be “fairer, more affordable, and more consumer-friendly.”

The new model applies to all new grant-funded shared ownership homes delivered through the Government’s Affordable Homes Programme (AHP) 2021-26 from 1 April 2021. The £11.5 billion AHP is expected to deliver up to 90,000 new shared ownership homes.

The key features are:

• The minimum initial purchase share in a property is reduced from 25% to 10%.

• New shared owners can buy additional shares in their home in 1% increments for up to 15 years, with heavily reduced fees. It is possible to staircase in larger increments with the minimum additional share purchase reduced from 10% to 5%.

• The cost of repairs and maintenance is met by the landlord for the first 10 years after purchase of a new property (with some limits).

• The minimum shared ownership lease term is extended from 99 to 990 years.

From 28 June 2021, new shared ownership housing delivered through the planning system (through s106 developer contributions) should also be based on the new model (with some transitional arrangements).

New right to shared ownership

On 17 October 2019 the Government announced a new Right to Shared Ownership. Eligible tenants in eligible social or affordable rented homes delivered by the AHP 2021-26 have the right to buy a minimum 10% share of their home, with the ability to buy further shares over time.

The Government has 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.

Comment

From a consumer perspective, measures to simplify and improve the shared ownership model have been welcomed.

However, the social housing sector has expressed concern that the new model and the right to shared ownership could impact negatively on their financial strategies and consequently their capacity to deliver affordable housing.

Some commentators have suggested that the reduced minimum initial purchase share of 10% risks encouraging low-income purchasers, who may struggle to sustain ownership 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.

Barriers to extending shared ownership

Despite the growing popularity of shared ownership, it is still far from a mainstream tenure. A number of barriers to its extension are identified, including: the complexity of the tenure; affordability; mortgage availability; limited demand in some areas; and difficulties with reselling.