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What are the proposed changes to Shared Ownership?

  1. 13 September 2019
  2. By Daisy Stephens

We analyse the government's plans to make tweaks to the nationwide Shared Ownership model.


In 2013, Shared Ownership was introduced by the government as part of its overall Help to Buy scheme, aiming to make it easier for first-time buyers to get on the property ladder.
 
Recently, the government announced a few tweaks to the current system to help people on lower incomes purchase their first home.
 
New Housing Secretary Robert Jenrick announced the changes in late August, but what did he say and what could the possible advantages and disadvantages be of a new Shared Ownership model?

What was announced?

The government said it will review the national model for Shared Ownership to make it simpler for people to buy more of their own home, including enabling them to buy in 1% increments.
 
Currently, owners of a Shared Ownership home must purchase an increased share in 10% chunks, which can be as much as £45,000 each time. The process of increasing the stake until the property is bought outright is known as ‘staircasing’.
 
Shared Ownership helps people with smaller deposits and those who can’t afford 100% of a mortgage on a home to get on the property ladder by part renting and part buying. It’s effectively a halfway house between owning and renting, with mortgage payments on the portion of the home you’ve purchased and rent paid on the remaining portion.
 
You can buy between 25% and 75% of the home’s value and, at present, can staircase up in 10% portions as and when you can afford it. To qualify for Shared Ownership, your household must earn £80,000 a year or less outside London, or £90,000 a year or less in London. You must be a first-time buyer, be a previous owner of a home who can’t afford to buy one now or an existing shared owner looking to move.
 
Our in-depth guide explains all you need to know about Shared Ownership in its current form.
 
The government insists that enabling owners to staircase in increments of just 1% each time will make it significantly easier for them to increase their stakes.
 
It’s unlikely, however, that the changes will be introduced until next year, with government business currently completely tied up with Brexit. It’s also unclear whether purchasers will still have to pay for valuations before staircasing, even if they’re only adding 1% to their share.

How will the new system work?

The government offered a number of case studies to show how the new model would work in practice:
 
£150,000 Shared Ownership property
  • A family in a £150,000 Shared Ownership two-bedroom property could buy an initial 25% stake with a mortgage for £37,500 while paying subsidised rent on the remainder.
  • They would then have to save up £15,000 at a time to increase their stake, and decrease their rent – which is beyond the reach of many.
  • Under the plans, shared owners would be able to save up 1% at a time – or £1,500.
 
£200,000 Shared Ownership property
  • A family in a £200,000 Shared Ownership three-bedroom property could buy an initial 25% stake with a mortgage for £50,000 while paying subsidised rent on the remainder.
  • They would then have to save up £15,000 at a time to increase their stake, and decrease their rent – which is beyond the reach of many.
  • Under our plans, shared owners would be able to save up 1% at a time – or £2,000.
 
£450,000 Shared Ownership property
  • A family in a £450,000 Shared Ownership four-bedroom property could buy an initial 25% stake with a mortgage for £112,500, while paying subsidised rent on the remainder.
  • They would then have to save up £45,000 at a time to increase their stake, and decrease their rent – which is beyond the reach of many.
  • Under our plans, shared owners would be able to save up 1% at a time – or £4,500.

Will it have any impact?

The main advantage is the much greater affordability of staircasing under the new rules. What could have once been £15,000 at a time, even for a lower-priced property, would now only be a far more affordable £1,500.
 
On the downside, of course, is that you only get a much smaller share – of 1% each time – if you choose this staircase option, which means you will have to pay higher rent on the share you don’t own and will prolong the road towards eventual total ownership, if that is your goal.
 
There is also an argument that the government’s plans aren’t very radical or revolutionary, with some homeowners having had the ability to staircase by 1% for a long while now. Shared Ownership schemes are operated by housing associations, not central government, with some associations setting their own rules when it comes to staircasing.
 
Thames Valley Housing (TVH), for example, launched its Shared Ownership Plus scheme in 2014, which enables Shared Ownership homeowners to purchase 1% of their home each year at a pre-agreed price.
 
Although some might see 1% increments as a bit of a futile exercise, they can make a dramatic difference over time. You’ll not only pay less rent on the share of the home you own outright, you’ll also benefit if the value of the home rises. You’ll be taking small but important steps to owning the property outright by staircasing in more manageable steps.
 
Equally, though, you may be better served trying to save up – over a number of years – a big enough pot of money to purchase one of the bigger 10% shares, quickening the process of outright ownership rather than taking lots of little baby steps.

Is Shared Ownership the best way forward for aspiring first-time buyers?

Like other housing schemes introduced by the government in recent times, there are pros and cons. Shared Ownership is arguably the best, easiest and cheapest way for first-time purchasers to get on the ladder – more so than the Help to Buy equity scheme or achieving it through traditional means.
 
Those using the scheme will also often end up paying less in mortgage and rent payments combined than they would have been paying out in rent.
 
On the downside, however, all Shared Ownership properties are leasehold – which means owners not only have to pay things like service charge and ground rent, they could also be affected by the much-publicised issues of the leasehold scandal which revealed the difficulties owners of leasehold homes have had in selling.   
 
There are also issues when it comes to getting a new valuation and paying for a solicitor every time you want to increase your share, which could prove costly (although this could be improved by the government changes and the chance to staircase in small increments).
 
There are currently around 200,000 Shared Ownership homeowners in the UK – which, while not insignificant, only accounts for around 1% of UK properties. The popularity of the scheme may, however, be enhanced by the changes – although the housing tweaks have been widely criticised as unworkable by the industry and are unlikely to be enforced anytime soon.
 
 

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