The Government is consulting on “making home ownership affordable”. This is essentially a push to investigate whether to reform shared ownership to make it:
* easier for owners to purchase shares
* easier for owners to sell their properties
* easier to get a mortgage.
This is all against a backdrop of steadily rising house prices over the last 50 years (notwithstanding the deflation of the “property bubble” during the recessions occurring in that period) and a steadily declining ability for first time buyers to be able to buy their own home on the open market. The paper indicates that Government wants to provide a “realistic pathway to full ownership” indicating that the current parameters for increasing an owner’s share in the property are, with current house prices, prohibitive (owners currently have to buy in 10% increments which often puts “Staircasing” out of reach of many shared owners). In order to improve this, the Government propose flexible staircasing, allowing owners to buy shares in much smaller increments - 1% is mentioned, but so are private sector savings products to support owners to buy more equity in their home in any amount at any time.
From a housing association perspective we can immediately see some potential benefits of enabling staircasing in smaller increments:
* Increased capital return on “sales” products which would release capital to reinvest in new development products (although admittedly it will take a lot of 1% shares to produce enough capital to make a significant difference!)
* Increasing the owners share in the property reduces the housing association's exposure under the mortgagee protection clause (the provision that allows mortgage lender to “take” some of the HA’s equity on a repossession effectively acquiring part of the HA’s interest for free). This assumes of course, that borrowing is not increased to facilitate acquisition of additional shares.
* Perhaps an improved perception of shared ownership as a genuine route to becoming a full owner for anyone who chooses it as a home ownership option, rather than an option of “last resort” for people who can’t (and currently never will) be in a position to own their own property.
However the obstacles are not insignificant:
* Allowing owners to buy in 1% shares would, in our view, require a shift in approach for associations. Currently many owners who staircase do so with the benefit of additional lending on a current mortgage or remortgaging, which due to the nature of HA and lender requirements, means lawyers for both parties have to be involved.
Allowing smaller increments will make it more likely that owners do not need to take further borrowing to increase their share, raising the prospect of shared owners wanting to do it themselves, with the consequent administrative headache that that this can bring for associations.
* Allowing acquisitions of smaller shares would, in our view, inevitably mean that housing associations would see an increase in staircasing transactions (whether with or without lawyer involvement). This would bring an additional administrative burden to HAs, who would need to ensure they had sufficient resource to deal with the increase in workload.
* Some form of valuation would still be required. The guidance suggests using a “fair-HPI based” valuation. This is, of course, an index based on average prices and representative data from the Office of National Statistics (among other sources). What it is not is a property specific valuation taking into account the specific characters of particular properties in specific areas. Therefore, in our view, it is a real risk that an HPI based valuation could result in either the shared owner or the HA not being treated fairly (if the valuation approach does not reflect reality in relation to the property in question).
So whilst we can see some benefits to the Government's proposals there are issues to overcome.
The consultation asks a series of questions for comment, which includes but is not limited to, the points mentioned above.
The consultation closes at 11.45pm on 29 September 2019 so make your view heard!