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The ARCH annual report for 2015-16 is now available to view.

 

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02/2016 Extension of Shared Ownership 04/02/2016

Key points

 

  • The NHF's voluntary agreement on extension of the Right to Buy to Housing Association tenants includes a commitment to explore the potential for tenants who cannot afford to buy outright to acquire an equity stake in their home. It would be prudent for local authorities to consider the merits and feasibility of a similar scheme for council tenants.
  • Very few local authorities currently operate Social HomeBuy schemes approved by the HCA, which allow tenants to buy an equity stake in their home at a discount pro-rata to that available under the Right to Buy. They can increase their equity stake later as with other shared ownership schemes.  Discounts are funded by financial assistance from the HCA.
  • There can be no guarantee that any initiative to extend opportunities for council tenants to acquire an equity stake would be based on the current Social Homebuy scheme; however, the current scheme provides a good starting point for consideration of potential options and their implications. 

 

Background

 

Chapter 3 of the NHF's voluntary agreement on extension of the Right to Buy to housing association tenants includes the following paragraphs:

 

"Many tenants would benefit from this new Right to Buy offer but others would not be able to or may not wish to buy their home outright, even with the discount. A number of housing associations have already developed innovative approaches to enable their tenants to access the housing market, for example flexible tenancies and equity stakes.

Housing associations would commit to extending this work with the aim of making available to all their tenants the opportunity to acquire a stake in a home which can increase over time. The Government would work with housing associations to help to develop flexible tenure models and savings vehicles to enable this to happen. This could include tenants converting their rented properties into shared ownership, overpaying on their rent in order to take an equity share in their property, or building up a savings pot to enable them to purchase an alternative property."

 

During the Comprehensive Spending Review (CSR) last Autumn there were several reports in the media that the CSR was considering the extension of shared ownership as part of the Government's home ownership drive. Ian Duncan-Smith was reported to be keen on the idea that councils and housing associations should be required to offer tenants the opportunity to buy on shared ownership terms. In the event, the CSR report did not mention this idea, but it may be that it is still under consideration within Government. ARCH members would therefore be prudent to consider the implications of such a scheme in case it is brought forward at some time in the future. This briefing paper sets out the fundamental points of the current Social Homebuy Scheme. 

 

Social Homebuy

 

Shared ownership has been around since the 1970s, provided under various schemes. Most homes made available for shared ownership have been new completions, although in the past Do-It-Youself Shared Ownership (DIYSO) schemes have given applicants the opportunity to purchase existing properties on shared ownership terms. Housing associations have been the predominant providers of shared ownership homes, although local authorities can and have provided a number.

 

Social Homebuy has been in operation since 2006. It enables local authorities and housing associations to operate schemes approved by the HCA under which tenants eligible for Right to Buy but unable to afford to buy outright may purchase an equity share of between 25% and 90% with a discount proportional to that they would have received under the Right to Buy. Discounts are funded through financial assistance from the HCA. Councils are permitted to retain the full capital receipt for reinvestment in social or affordable housing. Very few local authorities operate schemes with only 40 homes sold in total since the scheme was introduced.

 

Social Homebuy operates in the same way as other shared ownership schemes. Purchasers acquire an initial equity share and may later purchase additional shares up to 100% at which point they acquire the freehold, if the property is a house, or, if it is a flat, a long lease on the property. Only the initial purchase is eligible for discount. Purchasers pay a rent on the landlord's share of the property which is initially no more than 3% of its market value. The rent may be increased annually by up to RPI plus 0.5% (neither the switch to CPI nor the rent reductions from April apply).

 

In the case of houses, purchasers become liable for repair and maintenance of the property as if they owned it outright. In the case of flats, they become responsible for maintenance of the interior and liable to a service charge in relation to maintenance of the exterior and common parts, like leaseholders, except that they pay a percentage of the full service charge equal to their equity share. Rent and maintenance-related service charges are eligible for Housing Benefit.

 

According to the HCA website, under shared ownership "property title and equity are split between the leaseholder (the shared ownership purchaser) and the shared ownership provider" and the purchaser acquires "a leasehold interest". However, the courts in Richardson v Midland Heart held that the tenant's interest was no more than an assured tenancy so long as she had purchased less than 100% of the equity and that she had no legal right to reimbursement for the equity she had purchased.

 

Eligibility for Social Homebuy is confined to households with earnings up to £60,000 (in London £71,000 for 1 and 2-bed properties and £85,000 for 3-bed or larger properties); these limits are due to rise from April 2016 to £80,000 and £90,000 in London. 

 

Issues for consideration

 

There is no guarantee that any Government initiative to extend opportunities to acquire an equity stake or purchase on shared ownership terms would be based on the rules of the current Social Homebuy scheme. However, the scheme provides a good starting point for consideration of the options.  Issues for consideration include:

 

  • Potential interest and take-up is likely to be greatest in areas where house prices are high relative to incomes. An eligible tenant who can afford it will normally be better off buying outright and receiving the full Right to Buy discount.
  • The great majority of shared ownership properties are relatively new and occupied by working households on relatively high incomes. Extending eligibility, particularly if this took the form of a right to purchase on shared ownership terms, would most likely involve a number of older properties potentially in current or future need of major repair and tenants on lower incomes or not in continuous employment.  
  • The minimum purchase of a 25% share debars tenants on the lowest incomes, but also helps to filter out tenants who would find it most difficult to afford their repair and maintenance obligations, in particular the requirement in flats to contribute to the costs of major repairs. The implications of reducing this minimum would need to be carefully examined.
  • Councils would presumably expect the current arrangements to continue that allow for HCA financial assistance and retention of capital receipts.   

 

ARCH will be monitoring how Chapter 3 of the NHF Voluntary Deal is put into practice and what if any benefits there might be in extending such arrangements to council tenants and will produce further briefings for members if councils are asked to provide similar opportunities for council tenants to acquire an equity stake in their home on either a voluntary or mandatory basis.

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