The government is reviewing a new national model for shared ownership to make it easier for people to buy more of their own home, including allowing them to buy in 1% increments.
They have sought views on:
You can read our response to the consultation below:
Q1. What would be the impacts of smaller staircasing increments on shared ownership mortgage products?
The administrative burden of processing incremental staircasing of 1% would be disproportionate to any gain achieved by both the housing association and the buyer. If the intention of the consultation is to negate some of the ‘hassle’ factors associated with shared ownership, then this proposal would be counter-productive and in our experience would not be attractive to those living in a shared ownership property. The aim behind staircasing is to secure more value through equity, the administrative costs and complexities needed to support a purchase as low as 1% would not, we believe, align with this aim.
Q2. What do you think the minimum staircasing increment should be?
As a minimum we believe 5% would be a practical minimum percentage. Having said this, it is important to remember that this could be a very different financial sum depending on the local residential property market. It would therefore seem sensible to move away from applying only percentages and agree a minimum value as well.
Q3. What products could be developed to support a flexible approach to staircasing that enables people seamlessly invest in their homes from as little as £250?
Mortgage lenders could accommodate regular mortgage over-payments, which could then be used to pay-down the mortgage debt or finance an additional equity purchase.
Q4. How should an estimated HPI-based valuation be implemented to ensure that people can staircase at a fair price?
This should not be implemented. It would not work well in a rural village context where there would be insufficient data on which to accurately base assumptions, a risk that could cause unfairness for either party. Housing associations work in partnership with professional RICS surveyors at all stages, it would be wrong to deviate from this and design in uncertainty from our own lenders, whose support is critical for the flow of capital into affordable homes. It is also important to consider the application of a surveyor value when added mortgage lending is financing the purchase, introducing a valuation mechanism outside of the RICS supported framework is likely to cause more frustrations than solutions.
Q5. How can we ensure that the administrative costs for each staircasing transaction are fair?
Linking this to a percentage of the transaction value as for example the sale fee currently is. Alternatively, a reasonable cap could be agreed in consultation with the sector and industry experts.
Q6. What else is preventing people from staircasing?
Mortgage availability is a restricting factor with many lenders treating shared ownership as a higher risk product without a basis to do so. Many mortgage lenders do not have adequate process or understanding of the shared ownership product. This is particularly true in a rural context where there is an even smaller pool of lenders, not because rural shared ownership products are higher risk, but simply because lender process has not evolved from mainstream products. Government should task lenders with expanding their offer on shared ownership products, especially rural shared ownership.
Q7. Are there other ways to improve staircasing that we should consider?
Q8. What is the minimum amount of time we need to provide landlords to repurchase the homes without causing a lengthy delay to the sales process?
Delivering rural shared ownership is reliant on securing land at an affordable price and critically the support of the local community. Indeed, paragraphs nine and ten within this consultation highlight the importance of local support more generally. Safeguards that make sure rural shared ownership homes stay both affordable and available to local people in perpetuity are essential. Without this the challenges of delivering shared ownership homes in rural areas will be even greater and contrary to the intention of this consultation, less shared ownership home will receive the support they need to get built.
In rural areas the escalation of property values often frustrates the viability of housing associations re-purchasing homes. This situation made worse if the shared owner has staircased to a higher percentage. A fund should be set-up to help re-purchase of rural shared ownership homes when this is necessary. This would particularly help smaller specialist housing associations with limited access to capital and low operating margins.
A realistic timetable for re-purchase should be 10 weeks. This accommodating the complexities around securing capital and conveyancing. This will still be less than a sale on the open market and entirely reasonable.
It is vital for the ongoing delivery of shared ownership in rural areas that the current mechanisms designed to protect the homes from being sold on the open market or without giving local preference are sustained. Without the assurances that these mechanisms achieve less shared ownership homes will be supported and built.
Q9. How can we ensure a new standardised product works for all providers of shared ownership homes?
There are currently only two variants of the standard lease, one of which is rural. Compared to the huge variety of leases provided by the private sector this does not seem overly complex. The consultations focus on this does seems without sound basis.
More important is the communication of the current lease to shared ownership buyers at an early stage so the mutual obligations are clear, including staircasing and resale process. It is important to recognise that compared to other sectors, housing associations have a good record of supporting leaseholders and selling homes in a timely and professional way. The premise of this consultation that this is not working effectively not in our view supported by robust evidence.
Q10. How else can we improve shared ownership mortgage availability and reduce lending costs?
This is where energy should focus. The limited understanding of shared ownership from lenders causes considerable delays to the sale process and financial disadvantage to shared owners through higher rates and charges. This is particularly true in a rural context.
Lenders should have dedicated products and staff to handle shared ownership transactions. Rates for shared ownership lender should not be unreasonably different to those offered on lending on market sales. The government should use leverage on lenders to ensure they support this mutual goal shared with housing association, to make sure shared ownership is an affordable and accessible product.
Q11. We welcome your views on the effectiveness of the shared ownership restricted lease in rural areas.
Rural restrictions are essential for the delivery of shared ownership in rural areas. Without these restrictions land availability, viability and local support would not be possible. As a consequence, fewer shared ownership homes would be built in rural areas, contrary to the ambitions of government.
The effectiveness of shared ownership sales comes down to the performance and understanding of the housing association acting as agent. When processes are designed to accommodate the sale of restricted rural shared ownership they already work very well. Some good examples of this include English Rural and our peers from the Rural Housing Alliance. Larger, less flexible housing associations should rural-proof policies and processes to align with good practice of those already working effectively. The use of Homebuy Agents has frustrated the sale of rural shared ownership rather than supported it, Agents are not set-up to accommodate the concept of local preference. Housing Associations should be able to act as their own agent when selling rural shared ownership, using local partnerships to secure sales and support buyers.
As covered in the response to question 10, lenders should have dedicated products and staff for shared ownership, including rural shared ownership. Increasing the pool of lenders is likely to have a positive impact and resolve some of the concerns around effectiveness.
It is also worthwhile remembering that although some of the complexities on rural shared ownership maybe greater than mainstream shared ownership, these complexities have been the essential ingredients in enabling the homes to be built and prioritising the local buyer who has benefitted from the home, above those who do not have a local connection. Subject to offering an effective service, some accommodation is therefore not an unreasonable expectation.
Martin Collett, September 2019