Shared ownership is changing: What does this mean for you?

At the beginning of April, the Ministry of Housing, Communities and Local Government (MHCLG) published its response to a consultation on shared ownership, which confirmed a number of important changes to how the model will work in future.

These changes will affect both current shared owners and those new to the scheme, so it’s important both groups know what the reforms are and what they mean for them.

Shared ownership is a type of housing tenure where the buyer purchases a percentage equity stake in a property and the rest is owned by the scheme provider – usually a housing association or local authority.

Shared owners often need a much smaller deposit than those buying a home with a traditional mortgage, so it’s a more affordable way of getting on to the property ladder. It gives prospective homeowners the ability to hold and increase equity in a property they otherwise may not afford.

Over time, shared owners can use a process called ‘staircasing’, where they buy further shares, to increase their equity in their home so they can eventually own 100% of the property if they wish.

What are the reforms?

There are four key changes the government has made to how shared ownership will operate. These form part of the Affordable Homes Programme 2021-26 that came into force at the beginning of April. Both new and existing owners will gain access to 990-year lease terms. Currently, lease terms are usually 99 or 125 years. Having a long lease is crucial when buying any home as it offers more security.

Those accessing the scheme will still have the option to choose how much of an initial share they would like to have in the property. To increase the affordability of the homes, another of the changes is a reduced initial stake for shared owners, from 25% to 10%.

Previously once people have bought their initial stake they could increase their share of the property in 10% tranches. The government’s changes introduce 1% gradual staircasing. By allowing homeowners to increase their share by smaller increments, staircasing should become more accessible.

Another helpful addition to the reforms is that the provider of the shared ownership home will now be responsible for repairs for the first 10 years of the lease. The maximum homeowners can claim to cover repairs has been confirmed at £500 per year, with unspent expenditure being rolled over for one year.

What do the reforms mean for those looking to buy through a shared ownership scheme?

Leases of less than 80 years are typically seen by mortgage lenders and estate agents to negatively affect the value of a property. The implementation of longer leases will give people security from being hit with a hefty lease renewal bill 10 or 20 years after buying the home.

Another benefit of the reforms is the amount shared owners must have available when they want to buy a stake in a shared ownership property.

Dropping the minimum share to 10% reduces the deposit required. For example, if a person decides to buy a 10% stake in a property with an overall cost of £200,000, the deposit needed would be £2,000. This reduction will help make shared ownership, and consequently access to the housing ladder, more accessible.

That said, one thing potential buyers need to be aware of is that mortgage options for those looking to buy 10% shares in properties have not yet been introduced. Greater clarity is needed to help understand what those options will be.

What do the reforms mean for current shared owners?

The 990-year lease extension applies to current and new shared ownership homes so this will benefit owners as well as buyers. Having a longer lease provides more financial peace of mind and will make it easier for the owner to sell the property on, should they wish to do so.

The government is also proposing to shorten the amount of time homes have to be marketed as shared ownership before the owner can sell on the open market. The terms of lease on a shared ownership property stipulate this length of time.

The housing association which owns the remaining share can use the time to list the property in its portfolio to find a new shared owner. This proposal will give shared ownership customers more flexibility when choosing to sell and make the process easier.

Repairs being covered by the provider for the first 10 years, will mean new shared owners are better insulated against the financial impact of unexpected repairs and maintenance work. When buying a new home, homeowners are never guaranteed its condition – houses are sold ‘as seen’.

Certain household appliances, such as boilers, can be expensive to repair or replace. Combining this with the costs involved in moving and buying new furniture, 10 years gives people leeway when rebuilding their savings and planning for the future.

Another important change for current shared owners is the 1% staircasing. Being able to increase shares in smaller increments should give part-owners flexibility and mean they don’t have to save for as long before they buy more equity.

However, one watch-out is the additional costs associated with staircasing, such as administrative and legal fee, and whether these will be disproportionate compared to such a small increase in equity value.

Shared ownership has stood the test of time, having been a mainstay of the UK housing market for over 50 years, but evolving with the times is important. The social housing sector and the government still have a lot of practicalities to clarify to ensure the reforms don’t become too complex.

But anyone considering shared ownership, or is already a shared owner, should be encouraged that the government is taking such a keen interest in the model and exploring ways of making it even more accessible.

Amy Nettleton is assistant development director – sales and marketing, at housing association Aster Group