What could the new shared ownership model mean for your business?
Evaluation of the new shared ownership model has led to industry appreciation of the potential impact of these changes.
The new shared ownership model has been subject to government consultation, with its first findings released on 8th September. Evaluation of that publication has led to an industry appreciation of the potential impact these changes may have on our sector, and on your business.
The new model aims to:
- Reduce the minimum initial share from 25% to 10%.
- Introduce a new gradual staircasing offer, to allow people to buy additional shares in their home in 1% instalments with heavily reduced fees.
- Introduce a 10-year period during which the shared owner will receive support from their landlord to pay for essential repairs.
- Give Shared Ownership leaseholders more control when they come to sell their home.
We are pre-emptively aware of the areas of leasehold management which will require significant extra resource following implementation of the new model. For example, there is scope for a surge in requests to staircase leases (given leaseholders will be permitted to staircase in 1% increments). We are happy to assist in dealing with the upturn in such instructions that you may experience as a result of the changes. The greatly reduced period of time you will be able to market the property before a shared owner can sell their property on the open market is also a concern.
The new cross-section of people able to access the housing market (by virtue of a reduced minimum initial stake of 10%) has created a risk that the financial viability of your shared ownership customer base may change. This in turn may potentially increase litigious instructions as leaseholders default on their financial obligations in their leases. Any possession proceedings would be subject to the Guidance for Mortgage Providers and Registered Providers for Social Housing on Handling Rent Arrears and possession sales.
We are also aware of the impact that these changes may have on your wider business.
- You will receiver smaller ‘up front’ capital receipts from your leaseholders, which could have a considerable cumulative detrimental effect on your income, given that grant requirements will demand that a significant proportion of your new build stock is sold on these new shared ownership terms;
- You will be unable to recover repair costs from leaseholders for the initial ten years of the term of the lease. No doubt there are also concerns around the ability to recover any of your repairing costs from leaseholders where repairs are required due to the fault of the leaseholder.
- There will be internal administrative costs for you in processing 1% staircasings, particularly as the new model will prohibit you from charging administrative fees to leaseholders when staircasing;
- The Affordable Homes Programme 2021-2026 may provide you with access to significantly more grant funding than usual (with much more grant being given to the regions than has been previously). However, there will be a strong allocation focus for shared ownership homes under the new model.
This is notwithstanding the additional impact of the ‘right to shared ownership’, which will also be implemented for AHP 2021-2026. The great majority of your newly developed social/affordable rent housing stock will be vulnerable to being sold on these new shared ownership terms.
We are aware of the sizeable effect these implications may have on your scheme viability assessments, and on your financial appraisals. Your income streams may also become much more volatile as a result of affordable rent units being lost to shared ownership, and resultantly it may become increasingly difficult to project scheme ‘break even’ points. All of this may have an impact on your forecasted development programme.
There are a number of ways that we can assist you with this daunting transition, including providing support to your leasehold teams as mentioned above. We anticipate the rigours your leasehold team will face in dealing with queries in regard to two ‘forms’ of shared ownership – the ‘old’ and the ‘new’.
More broadly, the change-based implications for your business may drive a necessity to place more of your new build stock into charge to raise funds to continue to develop and deliver affordable housing. Accordingly, as your solicitors, we are aware that when acquiring a site for development, it is important that legal documents are drafted to maximise ability to obtain as high value as possible against your housing stock in the future. In doing so, lenders will be comfortable to give higher values against units.
In relation to the legal documents (eg. s106 agreements) entered into for new schemes from the beginning of AHP 2021, we will ensure a number of aspects are taken into account. Any restrictions relating to initial minimum stakes, staircasing increments, the requirement for affordable rent units to be converted to intermediate housing, and other issues arising from the new AHP programme and new model of shared ownership will all be factored into our advice.
We are still waiting for the crucial details of the new model, but we note a technical consultation has now commenced ahead of its final implementation (the outcome of which we will watch with great interest).