Earlier this week the Government announced a series of changes to the structure of Shared Ownership (SO). These changes will make SO more accessible for lower income households and reduce ongoing housing costs. However, they will also increase the cost of providing and managing SO properties, which could reduce site viability and overall levels of housing delivery.

There are three major changes in the announcement:

The minimum initial share

Shared Ownership lets households buy between 25 per cent and 75 per cent of their home and pay a subsidised rent on the rest. The changes proposed would reduce that minimum initial stake to 10 per cent. This will make SO more accessible for lower income households.

Assuming lenders continue to offer 95 per cent loan-to-share mortgages for SO, the minimum deposit required to buy a 10 per cent share in the average new build home in England (£310,000) would be just £1,550.

The minimum income required to buy a 10 per cent SO home will be lower than that required to buy a 25 per cent share, or indeed to buy a home through Help to Buy or First Homes. Accounting for both mortgage and rent payments, the minimum income needed to buy a 10 per cent share in the average £310,000 new home is just £28,020. That’s significantly lower than the £58,125 needed when buying the same home through Help to Buy or £48,825 to buy that home with a 30 per cent First Homes discount.

If the average initial SO stake decreases, more grant funding will be needed to develop SO homes. That’s because registered providers of social housing receive less income from selling smaller stakes in SO.

The minimum staircasing requirement

At present, SO residents can generally only increase the share of the home they own (staircasing) when they can afford an additional 10 per cent of the property’s value. The new changes would reduce that threshold to 1 per cent.

This will make it much more affordable for households to staircase. In doing so, they will reduce the amount they have to pay each month in rent.

The administrative and legal costs of staircasing do not have to be high. SO Resi, for example, already allows residents to buy an additional 1 per cent share in their home every year at a pre-agreed value. By agreeing values up front they can control administrative costs, making staircasing more affordable.

Repair and maintenance costs

Under the current system, SO residents are responsible for the cost of repairing and maintaining their home, regardless of what equity stake they own. These new changes would shift those costs from the resident to the registered provider for a 10-year period.

This will reduce ongoing costs for residents, making SO more affordable for them. But passing those costs onto the housing associations leaves them with less revenue from each SO sale, which in turn means they can provide fewer social rent and affordable rented homes unless there is an increase in grant funding.

Further information

Find out more about how shared ownership can work for you

Contact Lawrence Bowles

Contact Savills Research