The Government has recently announced New Model Shared Ownership. There is a lot of detail still awaited, but what do we know so far, and how does it affect home buyers and housing associations?
Lower Minimum Initial Share
The new model will introduce an initial share minimum of just 10%, as opposed to the current 25% minimum. This is good news for those looking to get on the property ladder, as they may also be able to obtain smaller mortgages.
Increasing your share in your property will become more achievable for homeowners who will be able to purchase just 1% at a time, rather than the minimum of 10% currently required. However, shared owners will only be able to buy 1% each year for 15 years.
For housing associations, this means more administration. The price of the 1% share will be based on an estimated valuation linked to the purchase price and adjusted in line with House Price Inflation. This can go up or down depending on the market.
Housing associations will need to put new systems in place in order to calculate the 1% reliably and to keep track of share increases and the associated rent decreases, and housing associations will not be permitted to charge administration costs.
Additional shares of 5% or more will require a RICS valuation, and it seems the valuation costs will continue to be payable by the shared owner, as with the current model.
Shared owners are being given more control over the sale of their property. Currently, a provider has eight weeks to nominate a buyer. Under the new model, a shared owner can reduce this to four weeks.
Housing associations who use the nominations period will need to act quickly when requests are received to ensure they make the nomination in time.
What we don’t yet know is if the Government will change the requirement for all buyers (nominated or not) to be approved by the provider.
10 year repairs
The Government have proposed a 10 year repair and maintenance grace period, making housing associations responsible for repairs and maintenance of shared ownership properties. It isn’t currently clear how this will work and exactly what damage and maintenance will be included. The intention is to reduce costs for shared owners for properties they own a small share in, but where will the additional money come from and how will housing associations cover these costs?
This announcement raises lots of questions; what about damage caused by the shared owner? What about garden maintenance and boiler breakdowns? How does this work with an estate service charge?
While we wait for the new model of shared ownership lease, which we hope will answer these questions, housing associations need to be considering how this could affect them, and what they can agree with developers to mitigate potential costs arising from this change. Property specifications, defects periods, adoption of estate infrastructure are all key considerations.
New Model Lease and application of the new model
The new lease model is expected before the new funding programme begins in April 2021. At this stage, we do not know if this will be a full redraft, which will probably be welcomed by many, or an adaptation of the existing model lease.
The new model will not apply to existing schemes, and voluntary introduction of any of the above changes could result in housing associations breaching the Capital Funding Guide and S106 requirements. Further Government guidance may provide for flexibility for existing shared owners, but we don’t expect to see this before the launch of the new model. Housing associations should not make any changes to their existing schemes until further guidance is provided.
The new model will only apply, and will be compulsory, for homes delivered through the Homes England 2021-2026 grant programme, receiving grant confirmation from 1 April 2021. It will not have retrospective application.
Housing associations will need to make sure that their guidance for their shared owners is up to date and caters for both the old and new models.
To find out more, please contact our Social Housing team.