On 08 September 2020 Housing Secretary, Robert Jenrick, made further announcements in respect of the government’s proposed investment into affordable housing.
The £11.5 billion Affordable Homes Programme is set to launch in April 2021 running for 5 years. It represents the highest single funding commitment to affordable housing in a decade.
It is hoped that the programme will provide up to 180,000 new homes across the country should “economic conditions allow”.
Conditions will be attached to the grant including at least quarter of the new homes to be built using “modern methods of construction” and around half are to be available for affordable homes ownership. A majority will be built outside London underlining the government’s commitment to “levelling up the whole country”.
The government has stressed that there will be a range of options available including Affordable and Social Rent and a new standard model for shared ownership.
The announcement maintains and repeats the prior emphasis of this government of the benefits of home ownership.
It is clear that the government intend to use the new standard shared ownership model as one of the principal pathways of delivering home ownership to those who would other wisestruggle to buy a home.
Changes to Shared Ownership
It is proposed that from April 2021, the new shared ownership model will be available as a right to all tenants of rental homes funded through the new government programme.
The new model will implement the following changes:
• Initial Share – A reduction in the minimum initial share from 25% to 10%. The government estimate that by doing so they will widen access to home ownership to over 300,000 additional households.
• Staircasing – The introduction of a “gradual staircasing model” which will permit the minimum initial purchase of additional shares in 1% installments with heavily reduced fees for up to 15 years. The valuation will not require aRICS surveyor but will be based upon an estimate linked to House Price Inflation. There will be a prohibitionon housing providers charging administration fees. The existing staircasing process, which will still involve a RICS valuation, will continue to apply to purchases of 5% and above.
• Repairs – A new 10-year period for new shared owners where the housing provider will cover the cost of any repairs and maintenance.
• Re-sales – The option for shared owners to have more control when they come to sell their home. The eight-week period for a housing provider to market the property to be reduced to four weeks by notice from the shared owners should they prefer to pursue an open market sale.
Whilst the significant investmentin affordable homes in order to tackle the ongoing housing crisis is welcome, many questions remain;
• Economic Conditions
Firstly, whether the programme will proceed if the caveat concerning economic conditions remain. Also, whether the likely distribution of housing will have any impact in London and the South East where it is arguably most needed due to rampant house price inflation.
• Housing Providers
The reception to the new shared ownership model from housing providers has been one of general disappointment as they will burden additional costs and administration as well as potentially losing much needed re-sale stock.
Housing providers will lose valuable receipts on smaller initial shares and will incur additional costs inadministering staircasing provisions at 1%.
Housing providers will also be liable for repairs and maintenance and the extent and the basis for these obligations is not yet clear. They will need to consider access rights (including for emergencies) to undertake repairworks and inspections, the indemnity available under any new build warranties and will require clear definitions of their repair obligations in order to avoid litigation over disrepair and any confusion if also collecting service charges for ground rents and estate maintenance.
It is likely that the proposed reduction in exclusive marketing rights for re-sale properties will reduce available stock to those in need as increased sales will occur on theopen market.
• Mortgage Lenders
Will mortgage lenders support a new model for shared ownership at a time when mortgage availabilityis already being tightened in the sector? In particular, it is doubtful whether lenders will bother to lend on initial shares being purchased of less than 10%. It is also doubtful whether any lender will be willing to accept an estimated value based upon House Price Inflation and not a formal RICS valuation.
Will lawyers reduce fees for the transfer of legal and beneficial interests in property notwithstanding that the same amount of work will be required for a 1% staircasing transaction as it would be for a higher proportion? Market forces will play their part but any significant reduction is unlikely unless there is some form of process simplification.
Overall, the changes to shared ownership leave a lot of questions unanswered and the detail is now required. It is certainly not as “ovenready” as the housing industry would have hoped.
Time will tell whether the changes will be embraced or other forms of affordable housing preferred. Together with changes to the planning system, the introduction of First Homes and changes to Help to Buy, it is hoped that the new model is made work able by all of the relevant stakeholders and that shared ownership maintains its role as a vital pathway to home ownership.
For further information regarding property law generally or relating to shared ownership and new build properties, please do not hesitate to contact Mr. Bill Dhariwal on DDI: 01489 864 117 or E: firstname.lastname@example.org
This article does not constitute legal advice. Relevant Law applicable as at date of publication.