Handing the keys back: Q&A with Womble Bond Dickinson (Part 2)

What options are available to people who are struggling to meet their housing costs? In this two-part Q&A with law firm, Womble Bond Dickinson (UK) LLP, we explore whether shared ownership tenants who are struggling to meet costs can simply hand their keys back.

In Part One we explained how shared ownership works, and the legal and practical implications of handing back keys to a housing association or a mortgage lender. In Part Two we explore the options that are available to people who are struggling to meet their housing costs.

.

Read on….

If shared owners are struggling with mortgage payments, what are their options?

We would strongly recommend that any shared owner who is facing financial difficulties and struggling with mortgage payments should speak with both their mortgage lender and housing association. It would also be helpful to contact a debt agency such as StepChange or Citizens Advice for information and advice.

Support for Mortgage Interest (SMI)

Support for Mortgage Interest is a government loan which helps with the interest payments on a mortgage or other home loan. The loan is paid directly to the lender and must be repaid, with interest, when the home is sold. To be eligible, individuals must be seeking qualifying benefits such as Universal Credit or Pension Credit.¹

SMI can pay the interest on the mortgage used by a shared owner, this can make monthly repayments more affordable. It can also help shared owners avoid falling into arrears. It is important to consider that SMI is not a grant, and the full amount plus interest must be repaid should a shared owner decide to sell their home in the future.

Flexible tenure

It is possible for shared owners to sell shares back to the housing association landlord. This is known as ‘flexible tenure’ and is designed to enable a shared owner to remain in their home either by selling some or all of their shares back to the landlord. It is also known as downward or reverse staircasing.² Its primary goal is to reduce financial strain. The process is as below:

• The shared owner must contact their housing provider to discuss their financial difficulties and explore all other options.

• It is at the sole discretion of the housing association and not an automatic right as to whether the shares can be sold.

• The housing association will assess the individual circumstances on a case-by-case basis. They will also consider if public funds (like SMI) are available.

• The value of the share sold back is typically based on the property’s current market value.

• In some cases, it may be possible to sell the full share back to the housing association and become a full tenant, renting 100% of the property.³

It is worth noting that whether total monthly payments reduce, and by how much will depend of factors beyond the control of housing association, such as mortgage interest rates. We would urge anyone in this position to find out how their monthly payments will change if they decide to go down the flexible tenure route.

Flexible tenure should generally be considered a last resort option (similarly to handing the keys back to a mortgage lender).

Subletting

Subletting is generally not permitted under a shared ownership lease. This is primarily because the scheme is designed to help people buy their homes as main residence, and not for commercial purposes.

There are two key reasons for this restriction:

• Ensuring primary residence: the terms of the lease usually require a shared owner to occupy the property as their main home. Subletting would breach this requirement.

• The homes are specifically allocated for those who meet specific criteria. This ensures that any property remains within the affordable housing sector for those who need them most.

However, there are exceptional circumstances where a landlord may grant written permission for the property to be sublet for a limited period. This is usually considered on a case-by-case basis for reasons such as being unable to sell the property after a long time on the market. Different housing providers will have differing views on what constitutes ‘exceptional circumstances.’

Selling the property

Selling the property is perhaps the most straightforward resolution if a shared owner finds themselves to be struggling with mortgage payments. It is worth considering whether the sale will produce enough funds to cover the costs of private rent or a new, smaller mortgage.

There are risks associated with selling the property. An example of this would be negative equity (where the fees from the sale of a property don’t cover the mortgage costs). We would strongly advise any shared owner who finds themselves considering selling their property as a result of falling behind on mortgage payments to seek independent advice.

If shared owners are struggling with monthly rent, what are their options?

Housing associations are able to reduce rent on an individual basis. However, this is not common and will be viewed, as we’ve mentioned before, on a case-by-case basis. We outline a few options below for shared owners who are struggling with monthly rent.

We’ve already listed a few options, such as SMI or selling the property. These options would also be available if a shared owner was struggling with service charges.

We’ve outlined a few further options below:

• Discretionary Housing Payments (DHPs): If Universal Credit or Housing Benefit doesn’t cover the full rent, a shared owner may apply to their local authority for DHP, which is a one-off payment to help with housing costs.

• MoneyHelper: This is a government backed service that can offer free, impartial advice and guidance. Launched in 2021, by the Money and Pensions service (MaPS) it makes it easier for people to get financial help. Assistance is available online or by phone.

If shared owners are struggling with high service charges, what are their options?

Shared owners are liable to pay for service charges. The most recent government guidance⁴ outlines service charges as follows:

‘Service Charges relate to your share of your landlord’s cost of providing services, including maintenance and repairs. Your shared ownership ;ease will set out services your landlord is to provide.

There are usually two key types of service costs you need to pay towards through this charge:

1. (Service) charges for day-to-day maintenance – eg cleaning of communal areas.

2. (Service) charges for major repairs – eg fixing the roof if it leaks.

Fortunately, there is protection provided by the law for tenants from service charges that can be shown as unreasonable.⁵ The Leasehold Advisory Service (LEASE) provides free initial advice and information on leaseholders’ rights. It is a specialist government body by the Ministry of Housing, Communities and Local Government (MHCLG) to provide initial advice and information on a wide range of issues, including service charges.

In addition to LEASE, the following options are available to shared owners who are struggling with high service charges:

• Contacting the mortgage lender. If a shared owner is in arrears for their service charges, the mortgage lender may be able to pay the arrears and add it as consolidated, manageable additions to the monthly mortgage. There may be a fee for this service and the mortgage lender may take legal action if the consolidated payments are not kept up to.

• The First-tier Tribunal (Property Chambers) welcomes applications from shared owners to dispute charges if they are deemed too high or that the provisions associated with the service charge – such as maintenance of shared spaces are deemed refutable. This may in turn lead to a reduction in the overall service charge and removal of the arrears amount.

Shared ownership should offer stability, not stress, to those who need it most. With the right support, shared owners can find a way forward but the lines of communication must be kept open.

1. What is Support for Mortgage Interest Loan (SMI)? | Turn2us ↩︎
2. Homes England, Capital Funding Guide, Section 7.4.1 ↩︎
3. Home Group | Selling back shares in your shared ownership home ↩︎
4. Leasehold property: Service charges and other expenses – GOV.UK ↩︎
5. The Right to Shared Ownership: A guide for tenants – GOV.UK ↩︎

We are extremely grateful for the support of Places for People and Womble Bond Dickinson in creating this content.

.

Additional Resources

Shared Ownership Resources: Handing the keys back: Q&A with Womble Bond Dickinson (Part 2)

Featured image: katemangostar on Freepik