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The new shared ownership proposals could result in a two-tier system

There has been much commentary on the new shared ownership model, but many of its impacts for housing associations remain unknown, write Ruth Barnes and Lindsay Garratt

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The potential for a two-tier regime of shared ownership is among many unanswered questions about the new proposals (picture: Getty)
The potential for a two-tier regime of shared ownership is among many unanswered questions about the new proposals (picture: Getty)
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The new shared ownership proposals could result in a two-tier system, write Ruth Barnes and Lindsay Garratt #UKHousing

There has been much commentary on the new shared ownership model, but many of its impacts for housing associations remain unknown, write Ruth Barnes and Lindsay Garratt #UKHousing

There has been plenty of commentary over the past few weeks about the proposed changes to shared ownership, from concerns about the practicalities of staircasing in 1% tranches to fundamental issues over the viability of schemes.

The headline changes are now well known and various organisations have raised issues, including the National Sales Group, which is providing feedback to the Ministry of Housing, Communities and Local Government.

We are already facing the possibility of a two-tier market because of the peppercorn ground rent requirement for the Help to Buy under the 2021/23 funding regime and the government’s intention to legislate for peppercorn ground rents across the leasehold tenure. Perhaps one of the biggest areas of concern, therefore, is that there will be further division in the shared ownership market.


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Take, for example, an existing shared ownership lease with a 25% share minimum with 10% tranche increases and full repair and maintenance costs.

That is likely to be more difficult to sell than a ‘new model’ 10% share with minimum 1% tranche increases and no repair costs.

This two-tier regime has yet to be addressed, leaving many questions unanswered. What will social landlords be able to do? Will reverse staircasing be an option or an obligation? Will social landlords be expected to vary leases or be required to? Who will pay for whatever is required?

There is a real risk that the resale process will be slowed down significantly for ‘old model’ leases, regardless of whether nomination provisions apply.

Then there is the issue of Section 106 agreements. Usually, Section 106 drafting specifies which properties will be shared ownership units (SOU) and which affordable or social rent.

Many Section 106 agreements specify the minimum equity share in the dwelling that can be acquired – typically expressed as 25%-75%. If the minimum share is to be reduced to 10%, this will require a variation to the Section 106 agreement. Registered providers will also need to review the Section 106 agreements.

There is, however, some good news. Most Section 106 agreements do not specify a minimum tranche on staircasing, so the proposal to allow 1% equity purchases should not adversely affect Section 106 arrangements.

The ‘right to shared ownership’ is also likely to throw up some further issues. Usually, a Section 106 agreement means that SOUs may only be used as SOUs and rented units may only be used for rent.

“A further consultation is proposed – hopefully sooner rather than later, as April 2021 is not far away”

While there might be some exclusions included in carve-out provisions, any proposal to give a rented unit the right to switch to shared ownership will need to be reviewed carefully, as a variation may be required or the agreement of the local planning authority may be needed.

The numbers of rented units switching to shared ownership may also have implications on viability review clauses in Section 106 agreements and the resulting tenure of additional affordable units to be delivered where reviews are triggered.

A further consultation is proposed – hopefully sooner rather than later, as April 2021 is not far away. As always, the devil will be in the detail.

Ruth Barnes and Lindsay Garratt, partners, Winckworth Sherwood

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