There is some good news on home ownership today. 18,050 reservations have been made under the Help to Buy scheme in its first seven months. The Right to Buy for council tenants saw sales of 2,389 between July and September this year – that is treble the amount for the same time last year.
However, a report from the Resolution Foundation suggests that more could be done to promote shared ownership. In a way, Help to Buy is a shared ownership scheme – it is based on equity loans. But the report says that property prices don’t just mean that meeting the cost of the deposit is a struggle for those on average earnings – it is also a struggle to manage the mortgage payments. The report offers lots of tables and figures to illustrate the obvious point that a shared ownership deal is easier to afford.
The report also confirms the strong desire for home ownership – their survey of 235 non-home owners found 92 per cent had this aspiration.
Yet shared ownership has not really taken off. Perhaps the current thicket of subsidies for such arrangements has perversely stifled the potential:
While shared ownership provides an affordable option and greater security than private renting, it is currently very limited in scope. There are only 174,000 shared ownership homes in the country and many of them are smaller properties. This limits access to the tenure as well as restricting the ability of those who are already shared owners to move as their family grows or their job changes.
Shared ownership is also subject to a series of rules and regulations set by government, local authorities, lenders and Housing Associations that make it inflexible and less attractive to consumers. More new shared ownership homes need to be built to help many more low and modest families get a foot on the ownership ladder and make an important contribution to new housing supply. Shared ownership needs to stop being seen as a form of social housing and be repositioned as the fourth tenure in the UK housing market – a first time buyer product targeted at low and modest income households.
As a subsidised product, shared ownership can be inflexible in several ways. Local Authorities impose relatively strict eligibility criteria beyond the basic national income criteria. This can make it difficult to access shared ownership and was identified as a barrier to considering shared ownership by a third (34 per cent) of survey respondents. When interviewed, prospective shared owners criticised the application process for shared ownership, suggesting that the eligibility criteria made it very difficult to be offered a property despite multiple needs or being trapped in unfit or overcrowded private rented accommodation. This can be a particular problem in London where many people live and work across borough boundaries but would not necessarily be eligible to apply for shared ownership based on where they work.
Those who buy a minority share in their home – say 25 per cent – are still obliged to pay the full leaseholder service charges to their council or housing association – just as if they owned 100 per cent. This is unfair and the rules should be changed. Given that councils who are hostile to home ownership seek to maximise service charges for leaseholders, these large bills – and the uncertainty involved in the charges – are offputting, especially for those on middle and lower incomes.
In many ways, rather than all the fiddly subsidies currently involved in offering shared ownership scheme – which seem to just end up restricting availability and adding to complexity – a much better deal would be a straight discount. The same logic should be applied to the right to buy. There should be a right to part-buy – with proportionate discounts. It should be extended to Housing Association tenants. The Labour Government’s Social Homebuy scheme has been a damp squib because of the miserable discount on offer. Social Homebuy could be given a rocket booster with proper discounts. Or that scheme could be replaced by something completely new, but offering a right to buy part with attractive discounts. Given subsidised council rents, that is the way to make escaping municipal serfdom a viable financial option.
The report offers further thoughts on how barriers could be brought down:
Resales are also subject to a nomination period before they can be advertised on the open market. Prospective buyers have to pay for
a RICS valuation which is more expensive than an estate agent’s valuation and has to be paid for upfront.
Sub-letting of shared ownership properties is generally not allowed. Four out of ten survey respondents cited restrictions on sub-letting as a barrier to considering shared ownership and the same number said that they were afraid that they would not be able to sell their the property and would become ‘trapped’.
There are also stricter capital adequacy rules for shared ownership than for high loan to value mortgages which make it harder for prospective buyers to secure a mortgage.
Microstaircasing where individuals buy very small chunks of equity, for example 1 per cent at a time, has been strongly disincentivised by the fact that shared owners have to pay for a RICS valuation for every tranche of equity they wish to purchase, however small. As a result of the challenges of staircasing, shared ownership has become more of a part ownership product for large numbers of people rather than a sure route to full ownership.
Councils could be given a “nudge” to include shared ownership, rather than social rent, in their priorities for housing development. Also they could ensure that family-sized share-ownership homes are included alongside the smaller properties.:
The challenges with the secondary market in shared ownership stem in part from the cumbersome rules that make sales of shared ownership more difficult. More important than these restrictions, however, is the issue of scale and the nature of shared ownership properties.
Shared ownership properties are more often smaller properties, particularly in London where one and two bedroom flats have been most
common in the last 10 years. This means that the current stock of shared ownership is poorly suited as a life-time tenure. It is currently difficult to transfer the equity accumulated in a two bedroom property into a share of a three-bedroom property and it is not usually possible to buy a share of a property that has not been purposefully built for shared ownership.
The Resolution Foundation is not a Conservative think tank. (I have been rather rude about them in the past.) This report offers the sort of aspirational proposals that the Blairites in the Labour Party would be sympathetic to. I rather doubt that the Labour Party of Ed Miliband, wedded to the ideology of state dependency, will be terribly keen on them. Never mind. For Conservatives, wider home ownership is an absolutely core belief. Shared ownership has the potential to help millions in social housing, and the private rented sector, onto the housing ladder. The Government should be bold and pursue the radical policies to allow this to happen, without delay.