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Shared ownership: Ugly sister or Cinderella?

Published: 18 October 2016

Around 200,000 UK households currently live in shared ownership, a tenure which forms around 0.4% of the English housing stock, around 1.3% of all mortgages, and around 0.7% of total mortgage borrowing.

But this sector, though small, would grow by 70% over the next five years if Government plans as currently envisaged are achieved. New research published today by the Council of Mortgage Lenders at its conference on low-cost home-ownership looks at the challenges and opportunities for the sector, and recommends practical steps to help this market develop.

Paul Smee, CML director general, comments:

This new independent research paints a positive picture of the current shared ownership market, and points up a number of productive recommendations for everyone involved to help its further development. We hope these will chime with the forthcoming Government white paper on housing, and we look forward to helping our members towards an operating environment that is favourable to shared ownership lending as a "fourth tenure" for the UK.

Authors Anna Clarke, Andrew Heywood and Peter Williams of the Cambridge Centre for Housing and Planning Research say that lenders generally recognise the role of the shared ownership sector, especially given that it is the only means of buying for some would-be home-owners, with many of those involved in this market seeing it as a social responsibility.

They add that lenders involved in lending to shared-owners are enthusiastic about recent reforms including the relaxation of eligibility conditions. The authors suggest that more lenders to the shared ownership sector are needed to keep pace with growing demand, especially on large sites (where individual lenders may limit their exposure), and where buyers have limited deposits. With around 15-20 firms currently lending on shared ownership, the large majority of lending is concentrated among a few lenders.

However, the authors also point out that lenders with experience of the shared ownership sector generally think that the Prudential Regulation Authority's view of shared ownership risk is unduly negative, and casts a shadow over lending to this market.

As more data becomes available about loan performance in this part of the market, the authors point out that this could be used to help inform market participants about risk.

It was also clear that, if shared ownership is to become a meaningful "fourth tenure", then lenders require uniformity and consistency in leases, rather than a plethora of local schemes with varied individual characteristics.

The authors' conclusion is that the shared ownership sector is "working reasonably well for lenders, and the level of lender involvement was not inappropriate for the current size of the sector… Land, funding and the financial resources of housing associations were seen as the most likely immediate barriers to growth…but if the sector does grow to target rates then mortgage finance could potentially become a limiting factor. Addressing the issues that reduce lenders' enthusiasm for the sector is therefore important, especially if shared ownership is to continue to offer a route to home ownership for those with limited capital and moderate income."

The report includes recommendations to central government, local government, lenders, the CML, housing associations and the National Housing Federation, all of which are designed to foster the conditions in which the shared ownership market can grow and develop.

Notes to editors

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 97% of all residential mortgage lending in the UK. There are 11.1 million mortgages in the UK, with loans worth over £1.3 trillion.

2. The research report Shared ownership: Ugly sister or Cinderella? is available on the CML website.

3. Specific recommendations to CML include ensuring up-to-date information on shared ownership is available on our website, facilitating a more definitive list of lenders who lend on shared ownership, and increased data collection to enhance lenders' understanding of market performance. All of these are being pursued positively.

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