Shared ownership is marketed as an affordable way for first-time buyers to own a home. Over the past few years the London Assembly has been taking a closer look at this assertion asking the question: ‘Shared ownership: is it really ownership?’. I purchased a flat via a shared ownership scheme in east London, so I’ve got a particular interest in their review. But many of the aspects covered by the London Assembly review are relevant to shared ownership schemes outside London. Particularly the over-arching question of whether shared ownership is actually ownership at all.
In November 2019 the London Assembly hosted an open mic event: Shared Ownership – does it work for Londoners? They were keen to hear first-hand from Londoners about their experiences with the model, and with housing associations as landlords. A number of people, including me, took the opportunity to voice our concerns.
- Is shared ownership an affordable way for Londoners to own a home, and are shared owners given the right information at the point of purchase?
- Can more be done to ensure they are given the right levels of support and guidance?
- Are the Mayor of London’s shared ownership homes truly affordable, and are they a viable route to full home ownership?
Details, including a full transcript of the January 2020 meeting, are available online. Or watch the meeting below (2 hours, 11 minutes). It’s worth picking out a couple of interesting observations from those discussions.
Staircasing
There is very little data on how many shared owners staircase to 100%, even though – as Dr Alison Wallace (Research Fellow at the University of York) points out – “the promise of full ownership hangs over the purchase”. (NB. the percentage of people staircasing to 100% in 2018-19 is estimated to be as low as 2.3%).
Peter Apps (Deputy Editor, Inside Housing) flags up that shared ownership buyers who have used their maximum capacity in terms of a mortgage are unlikely to be able to staircase any time soon, with Dr Wallace commenting that this is particularly true in London where “house prices rise faster than incomes and people never catch up”.
Leasehold extension
Are shared owners given the right information at the point of purchase? When it comes to leasehold extension, it seems not. Shared ownership buyers often aren’t made aware that they don’t have a statutory right to extend their lease until they’ve staircased to 100%; something that only a tiny minority achieve. Or even why lease extension is a necessary cost to plan for.
This was reinforced by an admission by Steve Moseley (Group Director of Governance, Strategy and Communications, L&Q) that the number of lease extensions in the L&Q shared ownership portfolio is “very, very small, 17 last year out of a portfolio of 9,000 homes”.
But if shared owners don’t extend their lease they may encounter difficulties selling on, particularly once there are fewer than 80 years remaining on the lease.
Shared ownership: is it really ownership?
On the question of ownership, Dr Wallace makes the absolutely vital point that shared ownership is, in fact, a landlord/tenant relationship (as is leasehold generally).
Are shared ownership and leasehold the same thing?
The Law Society summarises differences between the three main forms of home ownership (or forms of tenure): freehold, leasehold and commonhold. But it’s more complicated than that. There are significant differences between leasehold and shared ownership. Shared ownership is, effectively, a fourth type of home ownership. A House of Commons briefing paper – Shared ownership (England): the fourth tenure? – explains: ‘Shared ownership leases are normally assured tenancies governed by the Housing Act 1988’. The briefing paper goes on to outline the implications:
‘A shared ownership lease is an assured tenancy under the Housing Act 1988.20. As such, if the shared owner fails to pay the rent required by the lease and/or fails to adhere to their obligations under the lease, then the housing provider may be entitled to terminate the lease and evict the shared owner (subject to obtaining any necessary court order). If the lease is terminated the shared owner will lose, and will not be entitled to any compensation for, their equity share in the property’.
Once staircased to 100% shared owners fall under the provisions of the Landlord and Tenant Act 1985 as a long leaseholder. The risk of possession no longer applies, although the tiny minority of shared owners who do staircase to 100% are still subject to the risk of forfeiture, as with any other tenant with a long leasehold. There are further complications if ground rent is above £250 pa (or £1,000 in London) which makes even long leases assured shorthold tenancies.
So shared ownership isn’t necessarily home ownership in the way that many first-time buyers anticipate when they purchase their initial share. Their rights to the equity in their home are limited in ways that may not become apparent until they try to sell, or if they get into financial difficulties which make it hard to keep up with payments. (Shared ownership isn’t even shared; but that’s a subject for another article!)
If you’ve read this far, congratulations! And, yes, shared ownership is complicated!
London Mayor proposal for 999-year shared ownership leases
Fast forward to January 2021. The London Mayor issues a press release outlining plans to increase the rights of leaseholders in the capital with a new expectation that all shared ownership homes built as part of his new Affordable Homes Programme (AHP) are sold with a 999-year lease as standard.
The proposal won’t do much to help existing shared owners who bought old-style 99-year or 125-year leases. And longer shared ownership leases will continue to create a landlord/tenant relationship. Shared ownership still isn’t actually ownership at all. It’s probably not within the Mayor’s gift to solve those thorny problems. But, still, unaffordable lease extension is one headache that future shared ownership buyers – in London, at least – may not have to deal with.
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