Shared ownership: Ten steps to take the Cinderella tenure to the ball
Published: 5 December 2016 | Author: Bernard Clarke
As the pantomime season approaches, could there be a better time to recall the story of Cinderella? A tale of an unloved, ignored poor relation – but with a potential to be completely transformed, and ultimately to be the star of the ball.
It was a contrast that we found impossible to ignore when we commissioned a research report published earlier this autumn, Shared ownership: ugly sister or Cinderella? Shared ownership is, after all, currently something of an overlooked, unloved and unfashionable tenure. But does it have an unfulfilled potential to shine?
Its supporters like to describe it as the UK’s fourth tenure. Currently, however, it lags a long way behind the other main options. Today, there are a mere 200,000 households in shared ownership in the UK, the equivalent of 0.4% of the English housing stock. Those households account for just 1.3% of existing mortgages.
The government, however, is among those with ambitious plans for the tenure. It wants to see the number of shared ownership properties grow by up to 70% over the next five years.
Lenders would like to help, but they cannot deliver this on their own. The provision of shared ownership requires the support of many different types of organisation – local and central government, housing associations, the National Housing Federation (NHF) and the Homes and Communities Agency (HCA) – and each has an important part to play.
The research we commissioned looks at the roles of each of these bodies, and analyses how they could work together to remove some of the barriers to wider take-up of shared ownership. This article identifies 10 steps that could take this Cinderella tenure to the ball.
1. Remove barriers that tend to restrict shared ownership to certain parts of the country. As shared ownership has developed, the market in re-selling properties in the tenure has grown steadily and now accounts for around a third of all purchases. But the largest number of shared ownership homes is in London, and a relatively small number of homes in the tenure overall can make it difficult to match buyers and sellers in all parts of the country.
Worries about the difficulty of selling homes in shared ownership could deter buyers and lenders. In some ways, this is a chicken-and-egg problem, as greater support for shared ownership from lenders could lead to an increase in the size of the sector, while a larger sector might encourage more lenders to offer shared ownership mortgages.
2. Adopt a positive mindset about lending. If the government wants to achieve ambitious targets, the availability of mortgages will be a key factor. Currently, there are almost 30 firms lending on shared ownership, many of them small, locally-based building societies, with three or four lenders responsible for a large proportion of the market.
Our research report, commissioned from the Cambridge Centre for Housing and Planning Research, concluded that shared ownership was currently working well for lenders. Their level of involvement was “not inappropriate” for the current size of the sector, it said, but mortgage availability could be a barrier to further expansion.
“Either existing lenders will have to treble their lending on shared ownership,” the report said, “or new lenders will have to enter the sector.”
For that to happen, lenders might have to re-consider outdated perceptions of shared ownership, and look more carefully at the real evidence on arrears and default. Lenders who did not provide shared ownership mortgages were more likely to see them as higher risk, the report said, despite a lack of clear evidence.
A good example of this is found in Northern Ireland, where lenders continue to respond with a strong, positive appetite to shared ownership there, called co-ownership, and have supported the purchase of more than 25,000 properties since it began in the late 1970s. Lenders there see the scheme as generally low risk and provide competitively priced finance for the mortgaged element of the package.
3. Avoid onerous local authority conditions on shared ownership properties. At this stage of the development of the market – where matching up buyers and sellers can be difficult in some locations – imposing unnecessary conditions on the sale of shared ownership properties should be avoided. These can cause problems, both for lenders and buyers.
Local authorities, in particular, need to avoid putting unhelpful conditions on the re-sale of properties. A pre-emption period – during which a property may only be sold to certain types of buyers, or must be sold by the housing provider – may not be a major block for lenders, the report said. But conditions preventing buyers from “staircasing” up to 100% ownership could cause some lenders to turn down applications.
4. A role for the CML in promoting shared ownership. The report sets out three ways in which the CML could provide support – by maintaining a list of lenders offering mortgages on shared ownership; collecting and publishing data on lending activity; and providing up-to-date information on shared ownership on our website.
* Data supplied by Moneyfacts shows that there are currently 28 mortgage providers offering shared ownership mortgages: Barclays, Cambridge Building Society (BS), Cumberland BS, Dudley BS, Ecology BS, First Trust Bank, Furness BS, Halifax, Hanley Economic BS, Holmesdale BS, HSBC, Ipswich BS, Kent Reliance, Leeds BS, Legal & General Mortgage Club, Lloyds Bank, Mansfield BS, Melton Mowbray BS, Nationwide BS, Newbury BS, Penrith BS, Pink Mortgage Club, pms, Santander, Teachers BS, Tipton & Coseley BS, TSB and Ulster Bank. A handful of smaller lenders also offer shared ownership mortgages, but on a restricted basis.
* We are currently seeking to build our knowledge of shared ownership lending, and have asked members to supply data. It will take time to build our coverage, but we hope to have enough data to carry out further analysis of the sector next year.
* For members, we publish an overview of the main intermediate market and low-cost home-ownership schemes, including shared ownership. We have also published an article setting out the pros and cons of shared ownership, and outlined our views on proposals to streamline the re-sale of shared ownership properties.
5. Keep the shared ownership brand – and give it a government-led marketing boost. Up to now, there has been too much re-designing and re-branding of shared ownership. This makes it unnecessarily difficult for lenders and consumers to engage with, and the report found that public understanding of shared ownership was limited. For example, there are widespread misconceptions about who is eligible for schemes and who is liable for property repairs and maintenance.
6. Streamline the range of shared ownership options. Lenders prefer uniformity in how schemes work, so it is important to avoid unnecessary complexity and a proliferation of schemes. Low volumes of business associated with small-scale, local schemes can discourage lenders from participating.
But, although lenders do not want to see an uncontrolled proliferation of small, local schemes, they accept that there cannot be absolute uniformity across the UK’s devolved nations.
Generally, however, housing associations should avoid producing an ever larger range of new products, and the report suggests that the NHF and HCA could consider consolidating the existing range and rolling out standardised products.
7. Use the model lease issued by the HCA, rather than a variation. The model lease sets out the rights and responsibilities of the main parties involved in shared ownership – buyers, housing associations and lenders. And it upholds some principles that are vital for lender support, including giving the lender first call on the proceeds of any sale of the property in the event of repossession.
Wider use of the model lease would help encourage lender confidence. So, the report suggests that, where properties are sold on with a lease that existed before 2010, the lease should be re-issued using the current version, if possible.
8. A comprehensive, central guide for lenders, brokers and solicitors – provided by the government. This guide should include information on all the shared ownership options available, as well as other schemes supporting first-time buyers.
It should also cover the legal issues relevant to each scheme – including information on earlier versions of the lease where they are still be in use for older properties and have not been updated. As more newly-built shared ownership properties come on to the market, firms might prefer to restrict lending to this growing part of the market. But providing information about earlier forms of the lease could help prevent this.
9. Create a framework promoting good working practices. Housing associations are generally keen to build and maintain good working relationships with lenders, particularly those with a long-term commitment to the sector. And relationships based on clear and well-established protocols can make it easier for lenders and housing associations to work together. Some of the necessary protocols are already in place – including guidance on shared ownership arrears and possessions, which we produced jointly with the HCA, the NHF and the Building Societies’ Association
10. Avoid high levels of concentration of shared ownership on individual sites. Some housing associations support shared ownership more than others, which can lead to a concentration of properties on particular sites. But some lenders are concerned about holding a portfolio of loans that is over-exposed to risks associated with any individual site. They may set their own concentration limits to avoid these risks, and this may affect the availability of mortgages.
Shared ownership is perhaps still waiting for its fairy godmother, and many different organisations will have to work together effectively if it is to be transformed and fulfil its potential. At this stage, there is still a long way to go for it really to become the UK’s fourth tenure. But, just like Cinderella, perhaps shared ownership will get a happy ending after all.