Can MTVH make shared ownership work better?

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MTVH recently approached the Social Housing Action Network (SHAC) with an invitation to discuss concerns raised by SHAC members who are MTVH residents (tenants, shared owners and leaseholders).

At a meeting on 9th August 2022 MTVH was represented by Geeta Nanda (MTVH Chief Executive), Ann Gibbons (Executive Director Customer Services), Mark Everard (Executive Director Property) and Matt Rhodes (Assistant Director Corporate Affairs).

The agenda included: complaints and case handling; rents and service charges; shared owners and leaseholders; and tenant and resident engagement. Shared Ownership Resources presented the section on shared owners and leaseholders.

Following the meeting Shared Ownership Resources submitted the report below to summarise requested action points and their context.


SHAC/MTVH REPORT SUMMARY

This report has been prepared, following a meeting between SHAC and MTVH on 9th August 2022, to provide information relating to action points requested on behalf of shared owners and leaseholders.

1. Rent Freeze

ACTION POINT – A shared ownership rent freeze, alongside rent freezes for social rent tenants

Context

One of the most pressing issues for shared owners is ‘upwards only’ annual rent review calculated as RPI plus 0.5% (or RPI plus 2% on some older leases). The National Institute of Economic and Social Research (NIESR) has issued a forecast that RPI could rise as high as 17.7% this year. Meaning that shared owners potentially face a rent increase of 18.2%.

The creators of the shared ownership scheme and model lease may not have anticipated high, and rapidly rising, RPI. (Although it’s hard to imagine why high inflation wouldn’t have formed part of modelling scenarios and stress testing during development).

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Nonetheless, many shared owners are now facing considerably higher rent increases than either social rent tenants or private rental tenants. And, unfortunately, this hike in rent inevitably occurs at precisely the same point that high inflation causes significant challenges in paying for energy, food, fuel and other everyday essentials.

Ad-hoc analysis by the Joseph Rowntree Foundation (JRF) suggests that, in 2019/20, the poverty rate for shared owners was 21% (double the rate for households purchasing a home outright with a mortgage). The findings of SO Resi’s Shared Ownership Market Review 2020 – that in 2019, 9.1% of shared owners were in arrears, that arrears had increased compared to the previous year, and that repossessions were on the rise – are noteworthy in the context of estimated shared ownership poverty rates.

Given the considerable rise in RPI since the JRF analysis and SO Resi’s Shared Ownership Market Review 2020 were published, there is a very real risk that a failure to freeze shared ownership rents could result in vastly increased poverty levels amongst shared owners.

Whilst housing associations may face challenges regarding loan covenants and exposure to increased costs arising from high inflation, it is not fair or appropriate that entrants to an affordable housing scheme should carry the burden of meeting these challenges.

For many it will not be a case of ‘won’t pay’, but ‘can’t pay’.

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Shared owners face financial misery and the possibility of possession. From a housing association perspective, there is both business risk and reputational risk if ever more shared owners fall into poverty and arrears.

2. Reform of Rent Terms

ACTION POINT – That MTVH lobby government for review of the problematic ‘upwards only’, RPI- linked annual rent review term in the model shared ownership lease.

Context

It is a major flaw of the shared ownership model that the households most exposed to the upward curve of ever-rising, inflation-linked rents are inevitably those who can least afford it. The impact of high rent increases will be more challenging for households whom affordability assessments determined could only afford a smaller share in the first place; and households who couldn’t afford to staircase following purchase of an initial tranche.

Additionally, Homes England’s policy of requiring entrants to the shared ownership scheme to purchase the maximum initial share they can afford means there may be limited flexibility available to address financial challenges arising from high inflation.

RPI

The Office for National Statistics say: ‘RPI is a very poor measure of general inflation, at times greatly overestimating and at other times underestimating changes in prices and how these changes are experienced’. They add: ‘we do not think it is a good measure of inflation and discourage its use. There are other, better measures available and any use of RPI over these far superior alternatives should be closely scrutinised.’

SHAC and Shared Ownership Resources therefore call on MTVH to lobby the Government for review of the problematic RPI term in annual rent review.

‘Upwards only’

Given shared ownership rent increases are ‘limited’ to a level higher than RPI they are, in fact, still rising slightly faster than RPI each and every year. Over time, this can result in rents rising to levels that are higher than for other tenures, and which could become increasingly unaffordable. The impact is less onerous if RPI remains broadly in line with wage inflation. But the ‘upwards only’ term greatly exacerbates adverse impacts as and when RPI races ahead of wage inflation.

SHAC and Shared Ownership Resources therefore call on MTVH to lobby the Government for review of the problematic ‘upwards only’ term in annual rent review.

3. Procurement

ACTION POINT – That MTVH work with SHAC on improved procurement processes for cyclical work, involving scrutiny by tenants and residents, in order to obtain the best outcomes for those tenants and residents.

Context

Where cyclical works are carried out, paid for via sinking fund contributions, shared owners and leaseholders are almost completely excluded from the process yet will ultimately foot the bill.

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Photo: rawpixel.com – www.freepik.com

This topic is regularly discussed by SHAC members. It is felt to be problematic, and flies in the face of the idea of shared owners and leaseholders as ‘customers’.

4. Sinking Funds

ACTION POINT – That MTVH provide all residents with annual updates on the level of sinking funds at the end of each annual reporting period, alongside budgeted future payments into that fund and budgeted expenditure. This sinking fund statement should be sent with the annual service charge statement.

Context

Shared owners and leaseholders receive an annual service charge statement from MTVH that, where applicable, includes details of contributions to sinking funds as a component of annual service charges.

But providing such details is fairly meaningless in the absence of contextual information on the total current value of the sinking fund, and, more importantly, the adequacy of projected value in future years for budgeted cyclical works. This leaves shared owners and leaseholders lacking the information required to assess any risks associated with the sinking fund, and any potential need to save towards a potential shortfall (assuming, of course, that is an affordable option).

5. Lease Extension

ACTION POINT – Further policy commitments to support shared owners who are facing issues with lease extension where MTVH is not the freeholder, and/or have fewer than 80 years remaining, in order that they also can extend their lease at an affordable cost.

Context

Shared owners and leaseholders face additional financial challenges if they have a short lease. MTVH are to be applauded for new policy commitments in 2021: to offer an option for shared owners to extend their lease to 990-years (from June 2021) at a cost based on the share they own; and not to consider marriage value when calculating the cost of lease extension.

But those welcome policy commitments do not address lease extension issues arising where MTVH is not the freeholder, or where a lease already has so few years remaining that shared owners imply cannot take advantage of those policy commitments as lease extension remains unaffordable in practice.

In 2021 the author participated in a G15 workstream on lease extension. Following consultation with shared owners, a report was presented to the G15 outlining key themes and concerns arising from shared owners’ experiences of lease extension, with recommendations. The report is attached as Appendix 1.

Two over-arching themes emerged: firstly, affordability over the long-term; and secondly, the intersection of policy (selling shared owners short 99 or 125-year leases) and transparency (not providing sufficient information on either the nature of the assured or assured shorthold tenancy tenure or lease length, and implications arising).

The report made three key recommendations:

  1. Shared owners to pay only their proportionate share of lease extension premium and other costs.
  2. Lease extension to 990-years, with ground rents reduced to peppercorn as standard for all shared owners; with retrospective application for legacy shared owners for an affordable, nominal, flat fee of not more than £2,000.
  3. Zucconi precedent not to be taken advantage of with immediate effect,,and recompense to shared owners who’ve already paid a lease extension fee calculated taking advantage of the Zucconi precedent.

Clearly, MTVH have already enacted some aspects of these proposals in the 2021 policy reforms detailed above. However, much more remains to be done, particularly for legacy owners and others who cannot afford lease extension via the existing routes.

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