Shared ownership schemes have long been integral to the UK’s strategy to expand affordable housing options. They bridge the gap between renting and owning, targeting individuals that can afford regular monthly payments but not the significant deposit required to buy a home outright.
However, MPs are now questioning the whether the model is truly a solution – or whether the dream of 100% home ownership will continue to evade first time buyers due to rising costs (amongst other issues).
In this article, we’ll review some key findings that prompted the call for reforms, and some possible changes we could see in future.
Before we get into the current situation and proposed reforms, let’s remind ourselves of why shared ownership was appealing in the first place.
Of course, these schemes open up the property market to a broader audience, leading to increased demand for new developments, particularly in areas where traditional homeownership is out of reach for the average household.
Developers involved in these schemes often benefit from government grants and incentives aimed at increasing affordable housing stock, which can make projects more financially viable and offset risks associated with lower return on investment areas.
In addition, providing a stepping stone to full ownership can contribute to community stability and cohesion.
With that said, staircasing can also result in unpredictable cash flow. The viability of projects can therefore fluctuate based on broader economic conditions that impact buyers’ ability to purchase additional shares (as we’re seeing at the moment).
Looking more broadly at affordable housing in general, there are concerns about shared ownership stock not being replaced, worsening the lack of social housing caused by homes moving into the open market. (Of course, this is based on the assumption that shared owners will eventually own their homes which – in many cases – does not look promising.)
Around 50% of new affordable housing units to be delivered under the Affordable Homes Programme (up until 2028) are expected to be for owner’s occupation, of which the majority are being sold as shared ownership properties.
The Gradual Homeownership Scheme, introduced several years ago, built on this foundation by allowing buyers to increase their shares incrementally and paying rent on the remainder at rates aligned with local market prices.
While these schemes sound promising, shared ownership is under criticism after a recent report was released.
The Levelling Up, Housing and Communities (LUHC) Committee recently released a report expressing that shared ownership needs to change in order to be an affordable route to home ownership.
The obstacles facing homeowners involved in these schemes include rising rents, uncapped service charges, and high maintenance costs.
Unlike rents, there is no cap on service charges, which often increase unpredictably. These added costs often prevent shared owners from staircasing when they originally planned to, delaying the possibility of 100% ownership.
The report discusses how one individual’s service charges rose by as much as 140-170% within the two years after moving into the property. Another saw a more modest, yet still problematic increase of 39% in two years, totalling £4,589 for the year in which the research was conducted.
With properties from the 2016-2023 Affordable Homes Programme, shared owners have to pay 100% of the costs for maintenance and repairs – despite not having a 100% stake in the property.
However, those under the 2021-2026 programme have these costs (relating to heat, water and drainage) covered by the provider for the first 10 years, after which they are liable themselves.
Aside from the above, here are some more issues within shared ownership, as discussed in the report:
Despite the report’s findings, one thing that seems unlikely to change – and which may be welcome news for providers – is the issue surrounding maintenance costs. The report suggests that the government should urgently look into the implications of ensuring shared owners only pay for maintenance in proportion to their stake.
According to the Under Secretary of State for Housing and Communities, the government has no plans to change this; she also referred to the initial 10-year period in which providers pay as a suitable alternative. (Again, this only applies to shared owners in the 2016-2021 programme and not those that entered into leases previously.) Otherwise, the report makes the suggestions below.
Homes England’s Affordability Calculator doesn’t take into account the challenges homeowners are facing when trying to staircase. It’s suggested that Homes England assesses how it can be more fit for purpose, such as including a long-term function that considers rising costs in various scenarios, and other fees.
Another suggestion is that it be compulsory for providers to highlight – before purchase – the possible costs that could be passed onto relatives in line to inherit the property.
The report calls for further assessment regarding the loss of these properties to the open market. It also suggests that the government forms a plan as to how to replace them.
The report states that the Key Information Documents that shared owners receive should include guidance on understanding their lease and signposting to other services that can help with this matter.
In situations where shared owners cannot legally sell due to building remediation problems, it’s been suggested that providers be mandated to buy back shares. (In December 2023, Michael Gove had announced that providers would be able to recycle capital grant funding to buy back shares under such circumstances.)
In addition, the report suggests that providers carry out an assessment on the merits of implementing buy back as a default entitlement (with government grants increasing to cover the extra costs involved).
While shared ownership has opened doors to homeownership for many, the rising costs and complex challenges associated with these schemes have led to a critical juncture.
For shared ownership to remain a viable part of the UK’s housing strategy, significant reforms may be necessary. These aim not only to protect existing shared owners but also to ensure that future schemes are more transparent.
Hopefully, we can move towards a model that truly reflects the needs and realities of aspiring homeowners today. In turn, providers may have an easier time establishing the viability of their schemes and accurately forecasting cashflow.
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