A home is one of the most expensive purchases most people will ever make. Yet housing associations market this complex tenure with the same degree of levity with which a company might sell, say, comic books or whoopee cushions.
The National Housing Federation (NHF) marketing campaign
The National Housing Federation (NHF) marketing campaign promotes shared ownership schemes with vacuous slogans including: ‘Painting every wall luminous green’ and ‘Cooking in your pants on Sundays’.
My younger self would have enjoyed the jocular tone of NHF advertising. My older self thinks the NHF campaign does home buyers a great dis-service by failing to live up to laudable claims of ‘myth busting’ and ‘explaining what shared ownership means’. Taking out a mortgage could be one of the most expensive decisions first-time buyers ever make. And, if they get it wrong, the consequences can be catastrophic.
Is there a catch?
An advertorial published in The Guardian during Shared Ownership Week 2020 included a quote from first-time buyer, Laura: “I think a lot of people don’t understand it, they think there’s a catch. There isn’t.” And there’s the problem in a nutshell… It’s perhaps a moot point exactly what constitutes a ‘catch’ but there’s no shortage of possibilities.
Part buy, part rent
For a start, shared owners are often surprised to discover they don’t ‘own’ their home in any meaningful sense. The ‘part buy, part rent’ slogan is widely used in promoting shared ownership. But some legal experts suggest that such terminology is potentially misleading as it misrepresents the legal form of the tenure.
(Editors Note: In a 2017 article ‘Shared Ownership: Risks and rewards for lenders’ – previously linked to in the paragraph above – law firm Walker Morris offered the following advice.
“it is incorrect, and therefore misleading and potentially an offence in contravention of the Consumer Protection from Unfair Trading Regulations 2008 (the CPRs) for housing associations, landlords, developers or lenders to advertise or refer to shared ownership schemes as “part buy, part rent”, or indeed by using any other terminology or slogan which suggests that the customer purchases anything other than an assured tenancy leasehold interest at any time prior to the 100% staircasing stage”.
Walker Morris appear to have unpublished this advice on their website. The firm have not responded to a request to explain whether they still hold the view expressed above).
The NHF campaign appears to confuse a marketing strategy (defining ‘it’s yours’ as ‘not sharing’) with the legal reality of acquiring an assured (shorthold) tenancy (legally shared owners are simply tenants). Shared owners face a risk of possession with no reimbursement of equity (in the event of arrears) or reduction in equity (if they can’t afford to extend a short lease).
The Homes England model contract specified a minimum lease length of 99 years for flats up until 2016, and 125 years thereafter. Many shared owners have been shocked to discover a need for expensive lease extensions before they’ve even finished paying off the mortgage on their initial share. Recent reforms will benefit households purchasing homes under the 2021-26 Affordable Homes Programme. The new standard lease length is 990 years. But there’s a price to pay. This reform will disadvantage existing shared owners by creating a two-tier market.
It gets worse; shared owners have no statutory right to lease extension unless they’ve staircased to 100%. Which very few will; one estimate is that only 2.3% of shared owners achieved full staircasing in 2018/19.
Are affordable homes genuinely affordable?
What about much vaunted affordability claims? These appear reliant on comparison with private rental or open market purchases over a relatively short timescale. They don’t factor in whole life cycle costs such as lease extension; rents that increase annually regardless of whether average market rents are increasing, static, or even declining; and full 100% liability for service and management charges regardless of the size of the equity share purchased. (Fire safety remediation costs are too complex to go into here but are self-evidently a source of huge emotional and financial distress for affected shared owners).
Government pitches shared ownership as the ‘affordable’ route into housing. Marketing rhetoric implies that ALL buyers benefit from shared ownership as a ‘step onto the housing ladder’. But this is over-simplistic and fails to recognise that the wider housing market creates both winners and losers.
Does the cross-subsidy model create a conflict of interests?
Could the shared ownership model be improved? Could shared ownership be more affordable? To some degree perhaps… But here’s the rub… housing associations’ overall funding model has historically depended in part on profits arising from shared ownership schemes (for example, the receipts from staircasing shares sold at current market value rather than original market value) to generate cross-subsidy for social rented homes. So the financial interests of individual shared owners are directly in conflict with the wider objectives of housing associations.
Reform of the shared ownership model is a complex topic. But reform of marketing materials, to ensure greater transparency about potential long-term costs and risks, would be a good start. The Law Society response to a technical consultation – issued by the Department for Levelling Up, Housing and Communities – on a new model for shared ownership includes a number of useful recommendations.
“This type of home ownership brings with it particular risks and limitations, so it is particularly important that prospective buyers are well-informed…. We would welcome some consistent information prepared by UK Government for shared ownership owners both on initial purchase and when purchasing additional shares. This would include information on the lending options available and some of the high rates of interest payable, the financing arrangements on incremental increase purchases and the possible difficulties they may encounter when they come to sell. This information should be available to be supplied to prospective buyers by lenders, housing associations and solicitors.”
The Law Society, 17 December 2020
If I had to choose one key policy reform…? “To stop using the term affordable for housing that isn’t” (a phrase I’ve stolen from Tom Murtha). To stop using the term ‘shared’ for housing that isn’t. And to stop using the term ‘ownership’ for housing that isn’t.
This post is a shorter version of an article originally published on Red Brick Blog.
Updated 8 September 2022, to provide an update on law firm Walker Morris’s article referencing ‘part buy, part rent’ terminology.
Updated 29 December 2021, to include new shared ownership reforms.