Consultation outcome

New model for Shared Ownership: technical consultation

Updated 1 April 2021

Applies to England

Scope of the consultation

Topic of this consultation: This consultation seeks views on the implementation of the new model for Shared Ownership.

Scope of this consultation: We are seeking views of all parties with an interest in the new model for Shared Ownership, so that relevant views and evidence can be considered ahead of final implementation.

Geographical scope: These proposals relate to England only.

Impact Assessment: We have included a summary of the Equality Statements prepared to support these policies.

Basic information

This is a public consultation and anyone with an interest in the proposals may respond.

This consultation will be of particular interest to tenants of social housing, Shared Ownership leaseholders, lenders registered providers of social housing, investors in social housing, and their representative bodies.

Body/bodies responsible for the consultation: The following bodies are responsible for this consultation:

• The Affordable Housing Regulation and Investment Division in the Ministry of Housing, Communities and Local Government (MHCLG).

Duration: This consultation will last for 4 weeks from 19 November and will close at 23.45 on 17 December 2020.

Enquiries: For any enquiries about the consultation please contact: AffordableHomesProgramme@communities.gov.uk

How to respond

You may respond by completing an online survey.

Alternatively, you can email your response to the questions in this consultation to:

AffordableHomesProgramme@communities.gov.uk

If you are responding in writing, please make it clear which questions you are responding to.

Written responses should be sent to:

Shared Ownership consultation
Ministry of Housing, Communities and Local Government
3rd Floor, South East Fry Building
2 Marsham Street
London
SW1P 4DF

When you reply it would be very useful if you confirm whether you are replying as an individual or submitting an official response on behalf of an organisation and include:

• your name
• your position (if applicable)
• the name of organisation (if applicable)

Introduction

1. The government is committed to making the dream of home ownership a reality for everyone and we recognise that for many this simply feels out of reach.

2. Shared Ownership has so far helped thousands of people take their first step on to the housing ladder. It plays a vital role in offering a route into home ownership to those who would otherwise struggle to buy a home.

3. But we recognise that we must do more to support aspiring homeowners. This is why we are investing £12.2 billion in affordable housing over 5 years from next year (2021 to 2026). This represents the highest single funding commitment to affordable housing in a decade. The investment includes the new £11.5 billion Affordable Homes Programme 2021 to 2026 that will deliver up to 180,000 homes, should economic conditions allow. This will unlock a further £38 billion in public and private investment in affordable housing.

4. Approximately 50% of the new homes delivered will be available as affordable home ownership and the vast majority of these homes will be the new model for Shared Ownership, helping even more people to realise their ambition of owning their own home.

5. We know there is more that can be done to make Shared Ownership work better which is why we have introduced changes to the standard model. We have

i) Reduced the minimum initial share from 25% to 10%
ii) Introduced a new gradual staircasing offer, to allow people to buy additional shares in their home in 1% instalments with heavily reduced fees
iii) Introduced a 10-year period during which the shared owner will receive support from their landlord to pay for essential repairs
iv) Given shared ownership leaseholders (shared owners) more control when they come to sell their home.

6. These reforms deliver on the government’s manifesto commitment to introduce a fairer and more transparent model of Shared Ownership. The new model builds on proposals put forward in the 2019 Making Home Ownership Affordable discussion paper and follows careful consideration of consultation responses.

7. All Shared Ownership homes delivered through the Affordable Homes Programme 2021 to 2026 will be subject to the new model for Shared Ownership. Older Persons Shared Ownership and rural restrictions will continue to apply.

8. Additionally, we have introduced the Right to Shared Ownership which will give many social tenants the opportunity to purchase a stake in their home using the new model for Shared Ownership. The Right to Shared Ownership will apply to all new rented homes funded through the Affordable Homes Programme 2021 to 2026, with limited exemptions. Read further detail on GOV.UK.

9. In designing the new programme, we have considered the additional cost that the new model for Shared Ownership will place on housing associations as they develop the new homes. We would expect providers to consider the additional cost of delivering the new model when applying for funding.

Aim of consultation

10. This consultation seeks to capture views on how best to implement the new model for Shared Ownership to ensure it can be smoothly adopted by providers and lenders, and effectively supports aspiring homeowners.

11. Following the outcome of this consultation, Homes England will be publishing a new model lease in early 2021.

The new model for Shared Ownership

Reducing the initial minimum stake to 10%

12. We have reduced the minimum share that people can buy at the initial point of purchase from 25% to 10%. Reducing the minimum initial share will allow people to access Shared Ownership with a lower deposit and, in many cases, it will mean that their combined rent and mortgage costs will be lower. This will make Shared Ownership accessible to more people and better support those for whom realising the ambition of homeownership is most challenging.

13. Providers should continue to encourage purchasers to buy the maximum share that they can afford and sustain to maximise value for money. Providers must sell shares flexibly (e.g. not just to the nearest 10%). This should take into account the specific circumstances of the purchaser. Homes England will be reviewing affordability and sustainability guidance to take into account the changes to the new model.

14. We recognise that a reduced lower stake could open Shared Ownership to alternative lending, or unsecured lending by specialist lenders (still regulated by the FCA) with less favourable terms than a traditional mortgage, i.e. higher interest rates. We are determined to protect the integrity of Shared Ownership and ensure those who access it are not exposed to unfair lending terms. We will continue to require all applicants to demonstrate that they can sustain home ownership, but we are also keen to seek further views on what more we can do to prevent purchasers from being exposed to unfair terms.

Questions

1. What steps could we take to prevent shared owners from being exposed to unfair lending terms?
2. How will a smaller initial stake impact the relationship between lenders and providers and are there any steps we need to take to address this?

Introducing gradual staircasing

15. The new model will make it easier to purchase further shares in the home by enabling shared owners to buy in smaller increments, if they wish to do so.

16. Currently, shared owners wanting to ‘staircase’ and progress to full ownership can only do so by buying at least 10% at a time. With house prices often rising faster than wages, and faster than shared owners can save, buying a 10% share in one go can be a difficult task. Under the current model, shared owners often need additional lending to staircase and incur costly fees.

17. Under the new model, in addition to being able to staircase in larger amounts, shared owners will have the option to buy 1% each year with heavily reduced fees. The price of each 1% share will be based on an estimated valuation linked to the original purchase price, adjusted each year upwards or downwards in line with local House Price Inflation. This will mean that shared owners will no longer have to get a RICS surveyor to carry out a new valuation each time they want to buy a 1% share. Landlords will be prohibited from charging administration fees on shares bought as part of this gradual staircasing model. Buying in 1% tranches will make it much easier to staircase without additional lending, enabling shared owners to avoid mortgage fees.

18. Key details are as follows:

• This option will be available to shared owners to enable them to purchase an additional 1% per year, if they wish to do so.

Valuation

• Providers will be required to use the original RICS valuation (i.e. the original purchase price of the home) as the baseline valuation. Each year, the landlord will use the latest available House Price Index (HPI) data for the appropriate local authority and property type (published by Land Registry) to adjust the valuation upwards or downwards and produce an up to date valuation for shared owners who wish to purchase an additional 1% of their home via gradual staircasing.
• Landlords must provide shared owners with this updated valuation (for the purposes of 1% gradual staircasing only) at least once per year, and at any other point the shared owner requests to purchase an additional 1%. The landlord must demonstrate how the estimated valuation has been calculated.
• HPI valuations will be valid for a maximum of 3 months at which point the provider will need to produce an up to date valuation using latest available data. This is in line with the current valuations process.
• There will be no right to appeal an estimated valuation. If unhappy then the shared owner can opt to use a RICS valuation – this will be at the cost of the shared owner.
• Where a RICS valuation is used (as above) or at any point a shared owner staircases in larger amounts (5% or more with a RICS valuation) this new valuation will become the base valuation, adjusted upwards or downwards using local HPI data for the remaining years.

Fees

• Providers will be prohibited from charging a fee for producing an HPI estimated valuation.
• Providers will be prohibited from charging any other administrative fees on the gradual staircasing model.
• The model is designed for cash purchases, avoiding further mortgage fees. The Mortgagee’s charge shall be secured over the additional 1% purchased and the buyer will be required to notify the Mortgagee in the event of completion of gradual staircasing.
• Shared owners will remain responsible for legal fees.

Property eligibility

• Gradual 1% staircasing will be applied to new Shared Ownership homes and homes where a resident has accessed Shared Ownership through the Right to Shared Ownership.
• The gradual staircasing offer must be available for a minimum of 15 years.
• Shared owners will not be able to roll over or accumulate the gradual staircasing offer to purchase in future years – it is limited to max of 1% each year.
• Providers will be expected to offer a full 15-year term of 1% gradual staircasing on the resale of Shared Ownership homes funded by the Affordable Homes Programme 2021 to 2026.

General

• Rent will be reviewed following each 1% purchase to take into account the acquired percentage.
• Shared owners will remain responsible for informing Land Registry of changes to the ownership structure following a staircasing transaction.

19. Shared owners wishing to buy larger shares will still be able to do so at any time through the existing staircasing process. For those staircasing using the normal process, i.e. using a RICS valuation, we will lower the minimum additional share from 10% to 5%. Fees will remain the responsibility of the shared owner.

Questions

3. Do you agree that HPI valuations should be valid for 3 months, if no, then how long should they be valid?

a. Yes – 3 months
b. No – 1 month
c. No – 6 months
d. No – 12 months
e. No – Other

4. Please give your reasons.

5. Are there any specific circumstances where local authority HPI data may not be appropriate and regional HPI data or other would be preferable?

6. Is there a risk that 1% gradual staircasing will conflict with housing associations charitable obligation to sell assets at best value?

a. Yes
b. No

7. If yes, then please provide evidence.

8. Do you have any further views on how best to implement the 1% gradual staircasing model?

Updates to repairs and maintenance

20. We are introducing a new 10-year, repair free period, during which the shared owner will receive support from their landlord to pay for essential repairs.

21. Shared owners, like other homeowners, are currently responsible for all the maintenance of their property and contribute towards the full cost of any repairs from day one. For most people entering Shared Ownership, the scheme serves as a first step on their journey as homeowners. The new repairs model will better bridge the gap between renting and homeownership. The changes will prevent shared owners living in new build Shared Ownership homes from being hit with unexpected repairs and maintenance bills in the initial years, better supporting them to put money aside towards buying more of their home.

22. Key details are as follows:

Major works and external repairs

• Shared Ownership landlords will be responsible for the cost of essential repairs required to the external fabric of the building and structural repairs to walls, floors, ceiling and stairs inside of the home - but only where the repair is not covered by the new build guarantee. There will be an expectation that any work required that is covered under the new build guarantee will be claimed by the policy holder at first instance.
• Responsibility for carrying out the structural repairs will remain with the building owner for flats or, in some cases, the shared owner for houses.
• Where applicable, service charges will still be expected to cover the cost of general maintenance and upkeep of the building (e.g. cleaning communal areas, concierge lift servicing, fire equipment). Shared owners will remain 100% responsible for service charges.
• Landlords will be expected to set up a sinking fund for the long-term upkeep of flats. In calculating the annual sinking fund charge, landlords should not factor in any works, expected or unexpected, within the first 10 years. Sinking fund contributions cannot be used for any works, expected or unexpected, within the first 10 years.

Internal repairs

• Shared owners will remain responsible for repairs inside of the home but will be eligible to reclaim costs from the landlord for the essential repair or replacement of (if faulty and not covered by warranty):
  • installations in the flat or house for the supply of water, gas and electricity and for sanitation (including basins, sinks, baths and sanitary conveniences, but not other fixtures, fittings and appliances for making use of the supply of water, gas or electricity), pipes and drainage
  • installations in the flat or house for space heating and heating water
• Shared owners will be able to claim up to a maximum of £500 in repair costs per year. Repair and maintenance costs in excess of this will be the responsibility of the shared owner. We have included a cap to prevent misuse of the scheme and to limit the landlord’s exposure.
• Shared owners will have the flexibility to roll over a maximum of 1 years’ worth of unused repairs expenditure into the following year (i.e. maximum roll over amount will be £500). This will help to protect shared owners in circumstances where annual repair costs exceed £500 and they had claimed less than £500 in the previous year.
• Shared owners will not be able to reclaim costs for a repair or replacement of any of the above due to improper use.
• Shared Ownership landlords will be responsible for ensuring works carried out are essential and genuine.
• The landlord will not be responsible for carrying out any cyclical works inside the home (e.g. pre-planned replacement/refurbishment of kitchen/bathroom).
• Health and safety requirements (e.g. gas servicing, electrical testing) will remain the responsibility of the shared owner.

Property eligibility

• The “10 year, repair free period” will apply to new build homes for the first 10 years of the property’s life or until the shared owner reaches 100% ownership (whichever is sooner).
• If the home is resold (as Shared Ownership) within this 10-year period, then the remaining years will be transferred over to the new shared owner. For example, if the home is resold at year 6 then the on resale the home will have a “4 year, repair free period” remaining.
• Where a resident has accessed Shared Ownership through the Right to Shared Ownership, they will have access to the “repair free period” providing that the property is still less than 10 years old. For example, if a resident accesses Shared Ownership through Right to Shared Ownership at year 6 of a property’s life, then the home will have a “4 year, repair free period” remaining.

Questions

9. Should any of the specified repairs, inside the home, not be within scope for this policy?

a. installations for the supply of water
b. installations for the supply of gas and electricity
c. installations for sanitation (including basins, sinks, baths and sanitary conveniences, but not other fixtures, fittings and appliances for making use of the supply of water, gas or electricity) pipes and drainage
d. installations for space heating and heating water
e. the suggested scope is fine

10. Please give your reasons.

11. Are there any further repairs, inside the home, that should be within scope for this policy?

12. Do you agree with the maximum costs (£500) that can be claimed by a shared owner for essential repairs inside of the home? If no, then what should the maximum be?

a. Yes – should be capped at £500
b. No – should be capped at £250
c. No – should be capped at £750
d. No – should be uncapped
e. No – other amount

13. Please give your reasons.

14. Do you agree with the maximum roll over period (1 year) for unused repairs expenditure? If not, then what should the roll over period be?

a. Yes – you should be able to roll over 1 years’ worth of expenditure (i.e. £500)
b. No – repair expenditure should be used within the given 12 month period
c. No – you should be able to roll over 2 years’ worth of expenditure (i.e. £1,000)
d. No – you should be able to roll over for 3 years or more (i.e. £1,500 or more)

15. What process should be put in place to enable shared owners to reclaim eligible repair expenditure from their landlord and resolve disputes?

16. What steps should be taken to ensure claims are genuine?

Pre-emption clause and nominations period

23. The new model will improve the experience of shared owners who wish to sell their home by allowing them to take control of the process earlier.

24. The current model gives landlords an 8-week period during which they have the exclusive right to market the property. If the landlord does not manage to identify a new buyer to purchase the seller’s share after 8 weeks, the property can then be placed on the open market and sold either through Shared Ownership or outright. Landlords holding long lists of prospective buyers interested in Shared Ownership are often well placed to arrange a speedy sale. But sometimes, the 8-week nomination period can result in unnecessary delays.

25. The new model will give shared owners the option to end the 8-week period at the 4-week mark if they would prefer to pursue an open market sale, giving them greater power and influence over the resales process.

Delivering the new model through Section 106 developer contributions

26. As previously confirmed, we will be setting an expectation that all Shared Ownership homes secured through s106 developer contributions will be based on the new model. The Secretary of State for Housing, Communities and Local Government will be laying a Written Ministerial Statement setting this expectation for all Shared Ownership homes that receive planning permission from April 2021. This will align it with the delivery of the new model in the Affordable Homes Programme 2021 to 2026.

27. We recognise that many developers will have secured land and will have been preparing planning applications under different assumptions. Therefore, we will be introducing transitional arrangements to ensure, as far as possible, that the planned pipeline of delivery is not adversely impacted by this new expectation. In our recent “changes to the current planning system consultation”, we consulted on transitional arrangements for First Homes:

Where significant work has already been undertaken to progress a planning application, including where there has been significant pre-engagement with a local authority on the basis of a different tenure mix of affordable housing, the local authority should have flexibility to accept alternative tenure mixes, although they should consider whether First Homes could be easily substituted for another tenure.

28. We will be adopting similar transitional arrangements for Shared Ownership.

29. The transitional arrangements will not apply to new grant funded Shared Ownership homes funded through the Affordable Homes Programme 2021-26. Homes delivered through this programme will be subject to the new model for Shared Ownership.

30. We expect the rules on Shared Ownership homes secured through developer contributions to follow through to any homes secured under the new CIL arrangements introduced in our “Planning for the future” white paper.

Questions

17. Do you agree that we should apply the same transitional arrangements to Shared Ownership as the one proposed for First Homes?

a. Yes
b. No

18. Please give your reasons.

19. Are there any further delivery issues we should consider ahead of implementing this approach?

Public Sector Equality Duty

1. The proposals covered in this consultation have been assessed by reference to the public sector equality duty contained in the Equality Act 2010.

• This requires the department to pay due regard to the need to: i. eliminate unlawful discrimination, harassment and victimisation and other conduct prohibited by the Act
  ii. advance equality of opportunity between people who share a protected characteristic and those who do not
  iii. foster good relations between people who share a protected characteristic and those who do not.

• The protected characteristics which should be considered are:

  • age
  • disability
  • sex
  • gender reassignment
  • marriage or civil partnership
  • pregnancy and maternity
  • race
  • religion or belief
  • sexual orientation.

2. We have considered statistical evidence from the continuous recording of lettings and sales of Social Housing in England (CoRe) and the English Housing Survey (EHS). The CoRe data provides information about the households that purchased as part of a Shared Ownership scheme. This gives an indication of the characteristics such as age, sex, ethnicity and disabilities of those who will benefit from Shared Ownership.

3. The proposals will affect those who meet various eligibility criteria and eligible households who wish to take advantage of Shared Ownership opportunities.

4. The proposals are not intended to directly affect any group with protected characteristics. We have produced detailed analysis using statistical evidence and determined there to be no direct discrimination associated with any of the protected characteristics.

5. We do not believe that reforms to the Shared Ownership model will result in any indirect discrimination. The changes will apply equally to all new shared owners regardless of the purchasers protected characteristics. Eligibility criteria to access Shared Ownership apply in the same way to all groups. The continued provision of affordable housing will have a positive impact on equalities.

6. The vast majority of housing delivered through this scheme will be allocated to consumers through Housing Associations.

Housing Associations carrying out public functions must have regard to the public sector equality duty. They will be cognisant of the need to eliminate unlawful discrimination, advance equality of opportunity and foster good relations between groups that do and do not share protected characteristics.

About this consultation

This consultation document and consultation process have been planned to adhere to the Consultation Principles issued by the Cabinet Office.

Representative groups are asked to give a summary of the people and organisations they represent, and where relevant who else they have consulted in reaching their conclusions when they respond.

Information provided in response to this consultation, including personal data, may be published or disclosed in accordance with the access to information regimes (these are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 2018 (DPA), the General Data Protection Regulation, and the Environmental Information Regulations 2004.

If you want the information that you provide to be treated as confidential, please be aware that, as a public authority, the Department is bound by the Freedom of Information Act and may therefore be obliged to disclose all or some of the information you provide. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the Department.

The Ministry of Housing, Communities and Local Government will process your personal data in accordance with the law and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties. A full privacy notice is included at Annex A.

Individual responses will not be acknowledged unless specifically requested.

Your opinions are valuable to us. Thank you for taking the time to read this document and respond.

Are you satisfied that this consultation has followed the Consultation Principles? If not or you have any other observations about how we can improve the process please contact us via the complaints procedure.

Annex A - Personal data

The following is to explain your rights and give you the information you are be entitled to under the Data Protection Act 2018.

Note that this section only refers to your personal data (your name address and anything that could be used to identify you personally) not the content of your response to the consultation.

1. The identity of the data controller and contact details of our Data Protection Officer

The Ministry of Housing, Communities and Local Government (MHCLG) is the data controller. The Data Protection Officer can be contacted at dataprotection@communities.gov.uk.

2. Why we are collecting your personal data

Your personal data is being collected as an essential part of the consultation process, so that we can contact you regarding your response and for statistical purposes. We may also use it to contact you about related matters.

3. Our legal basis for processing your personal data

The Data Protection Act 2018 states that, as a government department, MHCLG may process personal data as necessary for the effective performance of a task carried out in the public interest. i.e. a consultation.

4. With whom we will be sharing your personal data

We will not share your personal data with any other organisation

5. For how long we will keep your personal data, or criteria used to determine the retention period

Your personal data will be held for two years from the closure of the consultation

6. Your rights, e.g. access, rectification, erasure

The data we are collecting is your personal data, and you have considerable say over what happens to it. You have the right:

a. to see what data we have about you
b. to ask us to stop using your data, but keep it on record
c. to ask to have all or some of your data deleted or corrected
d. to lodge a complaint with the independent Information Commissioner (ICO) if you think we are not handling your data fairly or in accordance with the law. You can contact the ICO at https://ico.org.uk/, or telephone 0303 123 1113.

7. Your personal data will not be sent overseas

8. Your personal data will not be used for any automated decision making

9. Your personal data will be stored in a secure government IT system

We are using a third-party system, Microsoft Forms, to collect consultation responses. Following the consultation, on 18 December 2020, the data will be moved from there to MHCLG internal systems.