What future for shared ownership?

In this article, we consider challenges around shared ownership, reforms to the tenure, and what providers should consider in light of this.

Past and present of shared ownership

Shared ownership is a well-established tenure, having been introduced in the form we know it by the Housing Act 1980 (which also brought in Right to Buy). As at 31^st March 2024, shared ownership represents about 6% of registered providers’ stock in England, with around 269,500 low cost home ownership properties. The vast majority of this stock (98%) is owned by private registered providers. This does not include homes where the resident has fully staircased, which make up some of the additional 136,000 leasehold properties in which private registered providers have a leasehold or freehold interest.

The tenure has come under increasing scrutiny of late, particularly as the building safety and cost of living crises have contributed to rising costs for shared owners. These rising costs, alongside increases in housing costs, raise questions about whether shared ownership can continue to be considered ‘affordable’ homeownership.

Despite these questions, there is clearly still demand for shared ownership homes. First tranche sales increased 2%, to 17,507, from 2021/22 to 2022/23.

Housing costs

Over the last 14 years, the average (mean) market price of shared ownership properties has increased from £164,600 to £309,700, an increase of 88%. This is above the wider housing market, which saw an 80% increase in house prices, likely reflecting higher pressure housing markets where shared ownership homes are located. As house prices increase, so do the value of deposits. The average (mean) deposit in 2022/23 was £23,200, the highest value since this was first reported in 2008/09. This remains far below the UK average deposit for a first-time buyer, which Halifax say was £53,414 in 2023.

Over the same period (2009-2023), median gross annual earnings for full-time employees in England increased by only 34% to £35,100 in 2022/23, indicating how house price inflation far outpaces wage growth. This is also set against a backdrop of rising inflation, and higher interest rates to control these rises, both of which drive up costs of mortgages, rent and services.

Service charges

There is no data on service charges for shared ownership homes. When looking at survey data on service charges across leasehold properties in England and Wales in 2024, the average cost was £3,634 per leaseholder, up from £2,523 in 2019, a 50% increase. During this period, the same data from The Property Institute suggests total costs have risen faster for taller buildings over 18m (at 49%) compared to those under 18m (at 42%). This reflects the increasing complexity of managing tall buildings, with additional costs incurred in relation to building safety compliance measures. There have also been faster rates of increase for management fees and buildings insurance compared to buildings below 18m. The Property Institute Data shows that buildings insurance increased by 92% for those over 18m from 2019 to 2024, compared to 69% for those below 18m.

Olive lives alone and earns £35,100 a year. After income tax (£374), national insurance (£150) and pension contributions (£6), her net monthly income is £2,395.

Olive has bought 43% of a £309,700 shared ownership flat on a 30-year mortgage at 4.8% interest rate with a £23,200 deposit. She pays £380 a month in rent and service charges of £303 a month (£683 per month in housing costs) and £547 in mortgage costs. This means her mortgage is 32% of her net income after housing cost, so exceeds the 30% threshold set out in the Homes England methodology for assessing affordability for applicants.

Based on her current income and expenditure, her surplus income each month is £601.

After five years, Olive’s rent could be as much as £509 a month, based on Retail Prices Index increase of 6% each year. Her service charges could be £454 a month, based on The Property Institute data which shows a 50% increase in average service charges per leaseholder from 2019 to 2024, but this is highly speculative as it depends on charges each year. This would increase her housing costs by £280 (41%) and, if her circumstances (including wage) were unchanged, leave Olive with £321 surplus income each month (a 47% decrease).

Satisfaction with shared ownership

Issues with the shared ownership tenure were highlighted in the LUHC Committee report in March 2024. This concluded that shared ownership schemes have “failed to deliver” an affordable route to homeownership. The report found rents, service charges, liability for repairs and maintenance and the complexity of homeownership leases make shared ownership, as the Chair of the Committee, Clive Betts said, an “unbearable reality” for many people seeking to take the step to fully staircase and become 100% homeowners. Some shared owners do staircase, though; since 2001/02, over 82,000 households have staircased to 100%. Sales peaked in 2021/22, with 6,050 sales by registered providers, but have since fallen, with 100% staircased sales from private registered providers (who make up the bulk of sales) falling by 37% from 2022/23 to 2023/24 (5,519 to 3,503), perhaps reflecting the bite of cost pressures outlined above.

Complaints around shared ownership and leasehold properties are particularly acute in London. The Housing Ombudsman recently stated that they have handled significantly more leasehold and shared ownership complaints in London compared to the rest of the country – 369 leaseholder and 171 shared ownership complaints in 2023/24 compared to 58 and 87 respectively in the next highest region, the South East. The English Housing Survey finds that social renters (which excludes shared owners) in London were more likely (24.8%) to report feeling unsatisfied with their accommodation compared with social renters outside London (15.2%). Most shared ownership homes are delivered outside of London, with 78% of shared ownership completions in 2023/24 outside London, an increase from 56% of completions in 2014/15. In terms of private registered providers stock, data from the Regulator indicates that 78% of low cost ownership homes in England in 2023/24 are outside of London.

Changes to shared ownership

The government has made some changes to the tenure to address these and other concerns, including:

• New model leases from Homes England and the Greater London Authority, which have increased the minimum lease length term from 99 to 990 years, the option to staircase in lower increments (1% a year for the first 15 years and 5% increments thereafter), and repairs and maintenance costs for new builds covered by the landlord for 10-years.
• Revised affordability guidance on new sales of shared ownership homes from Homes England. This includes a detailed assessment of an applicant’s income and expenditure combined with the minimum surplus monthly income adopted by each registered provider. The affordability assessment should ensure that the mortgage an applicant secures represents no more than 30% of their net income after accounting for firm expenditure commitments, rent and service charge (as applicable).
  • As part of Homes England’s Compliance Audit requirements, a sign-off sheet and budget planner should be completed and signed by relevant parties as evidence of an affordability assessment and outcome.
• Reforms to service charges through the Leasehold and Freehold Reform Act, though these require secondary legislation before they come into effect.
• Reforms through the Renters’ Rights Bill, which proposes that shared ownership leases cannot be assured tenancies. This should mean shared owners will have greater (statutory) rights and protections when it comes to lease extensions.

What next?

As well as the Renters’ Rights Bill, the big change coming is Labour’s draft Leasehold and Commonhold Reform Bill, which delivers on their manifesto commitment to move from leasehold to commonhold. Given this is based on the Law Commission’s work on this issue, new shared ownership leases may move to commonhold. This might include allowing shared owners to challenge expenditure that exceeds a certain amount specified in the Commonhold Community Statement. The previous government, in their response to the LUHC Committee report, rejected making service charge liability proportionate to the share owned by the leaseholder due to the effect on increasing subsidy. We can expect further details in 2024/25 when the consultation for the draft Bill is likely to launch, prior to being formally introduced to Parliament.

Better data collection and analysis will also help understand issues and their scale. The previous government also committed to this, which we hope the current government will bring to fruition. The soon-to-be-published tenant satisfaction measures can also be interrogated for providers with comparatively high or low rates of satisfaction for shared owners.

Finally, the rent certainty and additional funding for cladding remediation, announced in the Autumn Budget, may clarify costs (and ease any safety fears) for shared owners.

Labour has so far stayed very quiet on shared ownership. We will have to wait to see what funding will be made available for what tenure in the next Affordable Homes Programme, given the government has said they will prioritise new homes at social rent. If there is no new government funding for shared ownership, this will affect cross-subsidy financing of new low-cost rental homes (not so much of an issue if public funding fills the gap) and raise questions about government intentions/interventions on affordable routes to home ownership.

Our advice

Shared ownership remains an important part of addressing housing need. To comply with changes and assist improved satisfaction of shared owners, at Altair, we advise our clients to:

• Ensure you are clear about what ‘affordable’ means with regards to the new Homes England guidance, and that appropriate processes are in place to ensure the tenure is affordable for tenants from the outset, and in the future, should their circumstances change.
• Keep minimum monthly surplus income levels under review. These might vary depending on the household and geographical area of operation. You might like to consider historic rates of staircasing and how your minimum surplus income could help improve this.
• Focus on the customer experience for shared owners, including information provided at application and point of sale – track the customer journey for each shared owner, review your service offer in line with their expectations, and consider whether you need dedicated services or offers for them (such as information on staircasing).
• Follow the key tests for shared ownership complaints from the Ombudsman’s recently published insight report, which includes the sales process, defects, cladding, repairs, charges and managing agents and freeholders.
• Identify customers who may be suffering from rising living costs, such as those where you know service charge rises have been particularly acute. Consider what you can offer around income maximisation, rent flexibility, reverse staircasing or other packages of support to help these tenants with costs.
• Consider whether you can to vary leases for your shared ownership portfolio, using the new model terms.

We will continue to monitor changes and inform our clients of the impact of these. If you are interested in talking to us about any aspect of shared ownership, from investment appraisal and development to service delivery and governance, please contact us.