Guidance

Right to Shared Ownership: initial guidance for registered providers

Published 8 September 2020

Applies to England

Introduction

Two-thirds of social housing tenants would like to buy a home, yet only a quarter currently believe they will ever be able to do so. This gap between ambition and expectation is not right. 

That is why we have introduced the new Right to Shared Ownership, which will give the vast majority of social tenants, living in new rented homes delivered by the Affordable Homes Programme 2021-26, the opportunity to purchase a stake in their home and then purchase further shares when they can afford to do so.

The Right to Shared Ownership will give social tenants access to the new Shared Ownership model. This new model is more consumer-friendly, fairer and more accessible and will better enable social tenants to buy more of their property and eventually reach full ownership.

The Right to Shared Ownership will apply to all new rented homes delivered through the Affordable Homes Programme 2021-26, with limited exceptions (see further detail below). 

This guidance has been published to provide providers with an initial overview of the scheme. Full guidance, including the full responsibilities of providers, will be published by Homes England as part of the Capital Funding Guide.

1. Main features of the scheme

1.1. The Right to Shared Ownership will allow eligible tenants who occupy eligible properties to purchase their social or affordable rented on Shared Ownership terms.

1.2. Tenants will be able to buy between 10% and 75% of their home (as per the current Shared Ownership rules). The price of the share will be based on a percentage of the full market value as determined by a Royal Institution of Chartered Surveyors (RICS) qualified independent valuer. The scheme does not involve a discount for the tenant.

1.3. Tenants will then be able to buy further shares and staircase to full ownership, in line with the rules of the new standard Shared Ownership scheme.

1.4. The requirements regarding the rent, service charges, maintenance and repairs for the Right to Shared Ownership is the same as for the new Shared Ownership model

1.5. Right to Shared Ownership requirements are a condition of grant funding in the Affordable Homes Programme 2021-26.

2. Properties in scope

2.1. The Right to Shared Ownership will apply as a condition on grant funding to all social and affordable rented homes built through the new Affordable Homes Programme 2021-26, other than those where a specific exemption applies.

2.2. Providing the tenant(s) satisfies/satisfy the eligibility criteria, providers must approve a Right to Shared Ownership application unless:

• the property is exempt from the scheme
• the sale would breach the cost floor rule
• the sales would be within the criteria set out in section 2.5 below

2.3. The following categories of property will be exempted from the scheme from the outset:

• local authority homes
• homes in designated protected areas and rural exemption sites
• specialist homes for older, disabled and vulnerable people
• alms houses
• homes where the landlord is a co-operative housing association
• homes where the landlord or freeholder is a Community Land Trust

2.4. Providers will be able to block Right to Shared Ownership a sale in cases where the cost floor is breached. A breach occurs if the current market valuation is below the total amount spent on building or acquiring the property, including the grant invested in the property.

2.5. In certain circumstances where a sale under the Right to Shared Ownership scheme would cause practical problems, the property may qualify for an exceptional exemption. For example:

• if there are legal impediments to a sale (e.g. where the provider is leasing the property and does not have enough legal interest to grant an adequately long sub-lease)
• if the sale would interfere with regeneration plans for the property
• if the property requires substantial repairs or remediation, distorting the value of the property

2.6. Tenants will have the right to appeal a decision to block a Right to Shared Ownership sale. Further guidance will be provided on the appeals process and the exceptional exemptions.

2.7. Where possible, providers who are unable to sell a home due to a breach of the cost floor or due to the issues noted in section 2.5, should offer tenants the option of accessing shared ownership on a similar property.

3. Eligibility criteria

3.1. Tenants will be eligible for the scheme if they satisfy all the following criteria:

• live in a property where the Right to Shared Ownership applies (see section 2) 

• hold an un-demoted secure tenancy, an assured tenancy, or a Localism Act fixed term tenancy (assured shorthold tenancy for a fixed term of at least 2 years)   

• have lived in the current property for at least 12 months    

• have been a tenant of social or affordable housing for at least 3 years (this need not have been with the same landlord, or continuous)

• are not in rent arrears     

• are not subject to a court order for the possession of the property  

• are not subject to bankruptcy proceedings or unfulfilled credit arrangements    

• are not subject to legal proceedings e.g. a notice of seeking possession has been served   

• are not subject to legal proceedings on the grounds of anti-social behaviour   

• satisfy all standard eligibility criteria for the Shared Ownership scheme including income requirements (currently an annual household income of £80,000 or less or £90,000 or less in London) and not already owning a property

• satisfy immigration requirements

3.2. In case of joint applications, all applicants must either be tenants or family members who have lived in the property for the 12 months prior to purchase. All applicants who joined the application must be party to the purchase at completion.

4. Pre-application

4.1. Providers will be expected to publicise the details of the scheme to ensure that all tenants in eligible properties are aware of their Right to Shared Ownership and how to apply

4.2. Providers will need to be able to respond to any queries from tenants about whether the Right to Shared Ownership applies on their property.

5. Application and initial checks

5.1. A standard application form will be made available for use by providers. Providers will need to provide easily accessible information on how to submit an application.

5.2. Providers will need to conduct initial eligibility checks on applications from their tenants.

5.3. It is the provider’s responsibility to ensure that only eligible tenants proceed to purchase.

5.4. On completion of these checks, the provider must respond to the tenant either confirming or denying eligibility.

6. Valuation and rent charges

6.1. Once a tenant has passed the initial eligibility checks, the provider is responsible for obtaining a valuation of the property. The valuation on initial sale should be carried out by an independent, RICS qualified valuer on behalf of the provider.

6.2. The value of the property must be based on its open market value at the time of the application. Valuations should be conducted in the same way as for standard Shared Ownership sales.

6.3. As per the standard shared ownership scheme, the annual rent should be set at the target level of 2.75% of the value of the landlord’s share, with annual rises limited to a maximum of RPI + 0.5%.  

6.4. We will be providing further guidance on a disputes process to allow tenants to dispute the valuation, if needed.

7. Affordability checks

7.1. Providers should undertake an affordability assessment to ensure that Shared Ownership is sustainable for the applicant.

7.2. Affordability checks for tenants exercising their Right to Shared Ownership should be similarly rigorous as the financial assessments that are usually carried out on prospective shared owners as part of the standard grant-funded scheme. Registered providers may wish to use Homes England’s shared ownership eligibility and sustainability calculator.

7.3. Providers must encourage purchasers to buy the maximum share they can afford and sustain. 

7.4. Providers should encourage applicants to seek their own legal advice and financial advice.

8. Reporting

8.1. Following completion of the purchase, registered providers will be required to hold records of Right to Shared Ownership sales.

8.2. Providers will be required to complete COntinuous REcording system (CORE) sales logs in respect of all homes sold through Right to Shared Ownership.

9. Grant recovery

9.1. Grant recovery rules have been defined – providers should factor in grant recovery following a Right to Shared Ownership disposal in their business plan – further details can be found in the Capital Funding Guide published by Homes England.