What are the key differences between the existing shared ownership structure and the new model being proposed?
As part of its pledge to get more people on the property ladder, the Government has proposed a series of radical changes to its new shared ownership model for England, the details of which are currently being ironed out. Responses to the open consultation will go to the Affordable Housing Regulation and Investment Division of the Ministry of Housing, Communities and Local Government. With the Government intending to invest £12.2 billion in affordable housing over the next five years, these proposals could have a big impact on the wider property sector. Here we highlight the main changes in the proposed model.
Barriers to entry will be lowered
The main difference between the existing model and the proposed model is that buyers can buy a much smaller stake in their home. In the existing shared ownership model, purchasers have to put up a stake of 25% of the property’s value. This will be reduced to 10% to encourage more people to join the scheme. Providers must also sell the shares flexibly and not to the nearest 10%.
Buying more shares will also become easier
Purchasing further shares will now be much more attainable with staircasing of 1% increments part of the new proposal. Currently, shared owners wanting to progress to full ownership can only buy shares of at least 10% at any one time. Purchasers will also no longer have to commission a RICS surveyor each time they wish to purchase shares; the value will now be linked to the local House Price Index (HPI). Landlords will not be allowed to charge administration fees on these purchases.
There's a new 10-year repair free period
The new model protects shared owners from hefty repairs fees, with landlords being liable to pay for essential repairs (structural or relating to the fabric of the building) on properties for the first ten years of a building’s existence. This means that if the property is sold within that ten-year period, the outstanding portion of that ten-year guarantee will be sold with the building, guaranteeing the new owner protection for the remaining duration. Non-essential repairs are still the remit of the shared owner, but they can claim back up to £500 a year for repairs or replacements relating to the supply of water, gas and electricity, and sanitation.
Selling will become faster, too
The turnaround time on selling a shared ownership will be slashed in half under the new proposal. Currently, if a shared owner wants to sell their home at the moment and has not staircased up to 100%, they must give the landlord at least eight weeks to try to sell the property before being able to put it on the open market. From April 2021, they will only have to give the landlord four weeks, speeding sales up and giving shared owners significantly more control over the sales of their property.
Transitional period for pre-April 2021 stock
There will be a period of transition for developers to ensure that land built and properties planned before the consultation period won’t be adversely affected. The Government has said, however, that it expects that from April all homes delivered under the Section 106 developer contributions (which allow developers permission to build in exchange for delivering affordable homes and contributed to 49% of all affordable homes completed in England in 2018/19) to be in line with the new proposal.
As homes delivered as part of the Government’s Affordable Homes Programme (AHP) are obviously also subject to the new scheme, it’s anticipated that the new proposal will become the new market standard. Whether or not it allows more people onto the property ladder, there are concerns over the immediate effect this new model can have on existing homes with less attractive terms.