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Does rent charged to shared owners merely cover housing associations’ financing costs, or does it generate surplus income for housing associations?

Date: 5 May 2021

To: Ella Cheney, Shared Ownership Programme Manager, Nat Fed (via email)

Dear Ella Cheney,

Thank you for your response to my previous letter dated 12 April 2021 in which I queried whether rent charged to shared owners merely covers housing associations’ financing costs, or whether it generates surplus income? My original question arose from the NHF website explanation that the role of shared ownership rent in financing as yet un-purchased shares is linked to shared owners’ responsibility to pay in full for major structural works within their home.

“The ‘shared ownership’ element of the contract with the Landlord refers to the agreement for the shared owner to purchase a full legal interest in their property while initially only paying an agreed percentage of the full purchase price. The rent payment detailed in the lease covers the Landlord’s cost of financing the percentage value of the property that the shared ownership Leaseholder has not yet paid for.“

National Housing Federation website

I would be grateful if you could provide further clarification on the points below.

Purchasing a full legal interest

Thank you for explaining that ‘purchasing a full legal interest’ is not the same thing as staircasing to 100%. Indeed Jason Winton (Partner, Thirsk Winton LLP) explains the term ‘legal interest’ as being rather meaningless in that it could refer to any of the following: a freehold, a long lease, a short lease (for example, an assured shorthold tenancy), or even a right of way. Mr Winton further notes that: “Adding the word ‘full’ in front doesn’t mean anything, since there is no such thing as a ‘partial’ legal interest”.

In my previous letter I asked what % of shared owners successfully purchase ‘a full legal interest in their property’ (not including those who staircase to 100% as part of a simultaneous sale and staircasing transaction)’? My question should therefore have been: what % of shared owners successfully staircase to 100% (not including those who staircase to 100% as part of a simultaneous sale and staircasing transaction)? Your response to my previous letter partially addressed this question.

Staircasing to 100%

You informed me that 134,000 shared ownership properties have staircased to ‘full ownership’ (your figure excluding “those where owners have staircased to 100% of a freehold”). I would be grateful if you could provide this information as a percentage rather than an absolute figure (excluding those who have undertaken staircasing to 100% as part of a simultaneous sale and staircasing transaction in order to sell).

Does rent paid by shared owners simply cover housing associations’ financing costs?

You further stated that the NHF does not collect information on the incomes or surplus of its members. This seems to imply that the NHF does not hold data on whether or not their members generate surplus income from shared owners’ rent charges, despite the statement on your website that shared ownership rent simply “covers the Landlord’s cost of financing the percentage value of the property that the shared ownership Leaseholder has not yet paid for”. Is this correct? Is the statement that rent paid by shared owners simply covers financing costs merely an assumption rather than an evidenceable fact?

Not for profit basis

You also made the point that housing associations operate on a not-for-profit basis. I would be extremely grateful if you could explain how this relates to the question of whether rent paid by shared owners generates surpluses for housing associations?

Shared Ownership Resources was launched in March 2021. One of the aims of the platform is to provide greater clarity on complex issues to assist first-time buyers and shared owners in making informed decisions. I will therefore be publishing this open letter on the website, and will publish your response as and when it is received. I look forward to hearing from you.

Nat Fed response (24 May 2021)

Dear Sue

I apologise for the delay in getting back to you. Ella has changed roles at the NHF, so I’m responding to your email.

I’ve reviewed the additional questions you have and we have no further information we can offer above the details we provided in our first response.  If you have any specific queries or concerns about a lease agreement you have, please do speak directly to your housing association.

While delivery of the Shared Ownership Campaign has transferred to a company called Keaze, we will be continuing to work with our members, the government and other stakeholders on policy matters relating to shared ownership. Our website will be kept updated with key developments.

Best wishes

Lucy

Lucy Grove

Head of External Affairs

@Lucy_Grove

She/Her