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Sector fears shared ownership will become ‘financially unviable’ following government overhaul

A planned government overhaul of the shared ownership model has been met with a backlash from the social housing sector, with some leading figures questioning whether the tenure will be “financially viable” after the reforms come in.

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Housing associations will have to “think carefully about the additional potential risks” following the government’s changes to shared ownership, says @natfednews #UKhousing

The government’s new shared ownership policy “feels as if it’s been plucked out of thin air”, says Peabody CEO #UKhousing

Multiple housing association leaders and sector bodies have raised concerns with Inside Housing over the government’s plans set to be implemented next year, which would see shared owners able to increase the share of their home in 1% increments and make landlords liable for repairs and maintenance for the first ten years’ of a lease.

Catherine Ryder, director of policy and research at the National Housing Federation (NHF), said she is “worried” that the new model “could affect the viability of new shared ownership homes” in the future.

She said landlords “will need to think carefully about the additional potential risks” and said the NHF will be looking to influence the detail on grant rates, amongst other things.

Brendan Sarsfield, chief executive at Peabody, said the new policy “feels as if it’s been plucked out of thin air” and will impact a number of factors, including landlords’ ability to use shared ownership profit to cross-subsidise affordable rented tenures. He also criticised the government for not working more closely with the sector to come up with a model that worked better for everyone.


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Matthew Bailes, chief executive at Paradigm Housing, said the changes will “clearly affect the financial performance of the product”, but said the full impact will not be known until “all the details are settled”.

The new model for shared ownership was announced earlier this week as the government revealed the details of the next Affordable Homes Programme (AHP), which will run from 2021-26. It will come into affect next April.

In addition to the changes around repairs and staircasing, the government announced that buyers will be able to purchase an initial minimum share of 10% in their home, compared to the current 25%.

It also confirmed that the majority of rented homes funded under the new AHP will be subject to the Right to Shared Ownership, which will allow housing associations tenants to convert their rented home to shared ownership.

James Prestwich, director of policy and external affairs at the Chartered Institute of Housing, said the new shared ownership model “will impact on providers’ business plans due to the increased costs, potentially decreasing their appetite for and ability to develop shared ownership in greater numbers.”

Mike Shepherd, development director at Vivid, said the organisation’s appetite to develop shared ownership will depend on the response from lenders. He said that lenders he has spoken to “haven’t been overly positive” about the 10% model.

A Ministry for Housing, Communities and Local Government spokesperson said: “Thanks to our new Affordable Housing Programme more families across the country will be able to realise their dreams of owning their own home.

“By including a 10-year period for new shared owners where the landlord will cover the cost of any repairs and maintenance, the new model will widen access to the scheme even further.

“Currently housing associations charge shared owners 100% of these maintenance costs despite leaseholders owning as little as 25% of the property and paying them rent on the remaining share. These reforms will help those on lower incomes who otherwise wouldn’t be able to access homeownership.”

Sector responds to shared ownership changes

Catherine Ryder, director of policy and eesearch at the National Housing Federation: "It's positive that the government has put such a strong focus on shared ownership, recognising that it is a key route onto the housing ladder for people who otherwise would not be able to afford their own home. However this new model represents a big change and we are worried it could affect the viability of new shared ownership homes.

"While there are definitely things that could be strengthened in the current model, in many parts of the country it works well; and it has made a significant contribution to the homes that housing associations have built over the last few years.

"Housing associations will need to think carefully about how they factor the additional potential risks. We will be looking to influence the detail, for example on grant rates, to make sure shared ownership remains a viable product to build and an attractive product for people looking to buy."

 

Brendan Sarsfield, chief executive at Peabody: “The new model is a worry and we’ve all got to think that through. I hope again it’s not just a political step and there is some logic behind it. I hope the government has done some financial and market analysis on this as the new model will affect the existing market, especially for existing shared owners who want to sell.

"It will also affect a number of other things- cross subsidy of rented homes; our financial capacity to sustain a long term programme when we have to retain more equity; and managing the transition on repairs back to leaseholders after the initial 10 years is up. If they’d worked with us more closely then perhaps we could make it work better for all, it feels as if it’s been plucked out of thin air without any insight into how it would work in practice.”

 

Matthew Bailes, chief executive at Paradigm: “The changes to the shared ownership lease will clearly affect the financial performance of the product, although it will be hard to understand the full impact until all the details are settled. Given the existing risks around the housing market, our reliance on sales margins to cross-subsidise rented homes, and the potential implications of Right to Shared Ownership, we are going to have to reflect on our development strategy going forward.

"We want to develop at scale, but additional uncertainty makes it harder. I hope Ministers take on board sector feedback, and also try to provide us more clarity on issues like fire remediation, Decent Homes 2 and carbon neutrality. Uncertainty on these issues will also reduce our risk appetite.”

 

Amy Nettleton, assistant development director - sales and marketing at Aster Group: “The government’s latest move to boost affordable housing delivery is a step in the right direction. Shared ownership has such an important role to play in making it easier for people to get onto the property ladder. There’s now an opportunity for it to be even more crucial. We know shared ownership works for many people – we’ve already seen a significant rise in interest in our homes since the easing of lockdown. But the watch-out is that revamping the model entirely could undermine the progress made so far in securing safe, affordable housing for those who otherwise might have been frozen out of the market.

“Lenders, landlords and housing associations will all have questions around additional funding sources and repairs and I expect another technical consultation to be announced further down the line. The current climate and ongoing uncertainty have paved the way for shared ownership to take a more central role. It could be the solution for thousands of people looking to get onto the housing ladder, so we need to get it right.”

 

James Prestwich, director of policy and external affairs at the Chartered Institute of Housing: "CIH has called for shared ownership to be seen as an important fourth tenure option, enabling people on lower incomes to access home ownership. Decreasing the initial share purchase to 10% will increase affordability though we have argued that people require very clear and transparent information to assess whether low cost home ownership is the right option for them.

"The flexibility to staircase in 1% increments will be attractive in high value areas, but may not be so necessary in areas of lower value. It is important to remember that one of the benefits of shared ownership is the additional control and security it can provide over other housing options such as private renting, even when householders are not able to staircase to full ownership.

"Shifting the full responsibility for and cost of repairs and maintenance onto the provider for the first 10 years will increase affordability and may increase the number of lenders prepared to offer mortgages for it. However, it will impact on providers’ business plans due to the increased costs, potentially decreasing their appetite for and ability to develop shared ownership in greater numbers. Lenders to the providers may also reduce their investment due to the need to factor what could be significant additional costs."

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