Leading the way in Shared Ownership

Shared Ownership is a key part of the Government’s affordable housing strategy. It’s a scheme that provides the option to purchase a share in a property whilst paying rent to the organisation who owns the remaining share (typically a Housing Association).

The scheme was launched in the 1970s and it’s believed there are currently over 200,000 homes in the scheme. New properties are continually being developed and existing properties are also being used more and more for Shared Ownership.¹

Those households have been attracted by the scheme's key benefits:

• Lower deposit requirements (as deposit is only required based on the share the customer is purchasing).
• Ability to purchase more of the property when they are able to afford it (in a process called ‘Staircasing’).
• Potential to limit stamp duty payments.
• Available on selected new build and existing properties.

It should be noted that whilst the customer only owns a percentage of the property, they’re usually responsible for the property’s upkeep in terms of property maintenance (cleaning, repairs, etc.).

¹https://www.gov.uk/government/statistical-data-sets/live-tables-on-affordable-housing-supply

In order to be eligible for the scheme, there are some key requirements for homebuyers to meet.

Homebuyers must:

• Either be a first time buyer unable to afford a home suitable for their needs on the open market, or a previous home owner who can no longer afford one.
• Have an annual household income less than £80,000 (£90,000 in London).
• Purchase between 10% and 75% of the property initially.

A full list of eligibility criteria for Shared Ownership can be found on the government website here.

Most Shared Ownership properties are new build homes but there is still a significant market for existing properties being sold using the Shared Ownership scheme – particularly in areas such as London and the South East where Shared Ownership has traditionally been sold in higher volumes.

Our research has shown an increasing number of homebuyers are opting for shared ownership properties that have had previous owners and are also securing larger shares in their homes.

In 2019, 16% of all buyers taking a Shared Ownership product with the Society bought an existing property, by 2020 that had risen to 25%. In the first six months of 2021 the data showed a very similar pattern emerging to that seen in 2020, with 24% in Q1 and 25% in Q2 buying homes that are not new build.

The percentage purchasing a share of 50% or more has risen from 24% in 2019 to 37% in the first six months of 2021, according to our figures.²

² Research based on Leeds Building Society Shared Ownership lending between 2019 and 2021.

The first step for the homebuyer is likely to be through a Housing Association, however that doesn’t mean finding a property has to be any more difficult than finding a standard residential property. In fact, it could be as simple as visiting a new development – Shared Ownership is a popular method of affordable housing that many local authorities insist housing developers build as part of new projects. Then there are traditional websites such as Rightmove and Zoopla where customers can search for Shared Ownership properties, and bespoke websites such as Sharetobuy.com, set up specifically to advertise Shared Ownership properties.

There are many choices for customers seeking a mortgage to purchase their Shared Ownership home, from smaller regional building societies to national high street banks. Customers using a mortgage to purchase their property will typically require a deposit, starting at just 5% (a key reason for the appeal of the scheme).

When a customer has found a property they’re interested in, the process for purchasing shares is similar to the standard house buying process, with only limited differences (changed parts of the process are in italics below).

1. View the property
2. Approval/financial assessment based on Homes England calculator
3. Customer given guidance as to the share they are able to purchase, and offer to purchase property made
4. Customer finds mortgage
5. Customer finds solicitor to handle conveyancing process
6. Exchange of contracts and completion

The additional financial assessment of the customer is a key element of a Shared Ownership purchase. This process will see the customer’s financial details assessed based on the Homes England calculator. The calculator will, taking all factors into account, give an indication of the size of the share the customer will be expected to buy (for which a mortgage will be required) and the size of the remaining unowned share (upon which the customer will pay rent, which is typically set at a starting rent of 2.75% e.g. unowned share of £100k resulting in annual rent of £2,750, or £229/month).

Homes England is a government body sponsored by the Ministry of Housing, Communities, and Local Government. Homes England was established in 2018 as the new trading name for the housing delivery of the Homes and Communities Agency (HCA).

The HCA’s responsibilities were split across two different organisations, Homes England and Regulator of Social Housing (RoSH). Homes England are responsible for housing delivery and RoSH are responsible for regulation, including maintaining the list of registered providers - those providers of social housing who are subject to regulation.

The memorandum of sale that the customer receives from the housing provider is used by the solicitors as confirmation of the different shares. This is also often required by the mortgage lender as proof that the mortgage they are being asked to provide is appropriate to the share being purchased (and also to confirm their rental payments).

Lenders in the Shared Ownership market typically expect the landlord to be regulated. The Government’s list of current providers confirms that as of 15/12/21 there are 1,625 registered providers³, although there are some lenders that do not have this requirement (it’s not known how many non-registered providers are currently operating).

In addition to the registered provider requirement, lenders expect the lease (as all Shared Ownership properties are sold on a leasehold basis) to be of a good quality, to assist with this Homes England and UK Finance developed and released a ‘model lease’ which Housing Associations are encouraged to use.

³ https://www.gov.uk/government/publications/registered-providers-of-social-housing

The model lease helps ensure Shared Ownership agreements have appropriate protections for homebuyers, landlords, and lenders.

It sets out rules relating to:

• Alienation – ensuring the customer has the property for the purposes of residential accommodation rather than for letting out to others.
• Mortgagee Protection – ensuring that the lender has the ability to reclaim losses up to the full value of the property (rather than just the share lent against) in the event of possession).
• Rent Review – giving the customer certainty of what their likely rent increases will be (typically RPI + 0.5%).
• Staircasing – giving the customer the ability to purchase further shares in their property, potentially giving the opportunity to fully own the property.

From a wider perspective, the key differentiator is likely to be loan to value (LTV). Each lender has their own view on what’s required, however it’s possible to find loans with a low percentage deposit requirement. It’s important to remember that deposits are based on the share being purchased, not the overall property value e.g. a £200,000 property, with a 50% share purchased, would have a deposit based on £100,000.

Whilst not every lender will accept Shared Ownership applications, there are a wide range of national lenders and a number of smaller building societies who are able to lend. The exact providers and their criteria can change, so it’s best to refer to sourcing systems/lender’s websites in order to understand what is available.

Home repairs and maintenance

A 10 year period for new shared owners was introduced where the landlord or housing association will cover the cost of repairs and maintenance in the home.

Shared owners are able to claim up to £500 in repair costs each year. Shared owners also have the flexibility to roll over a maximum of one years’ worth of unused repairs expenditure into the following year.

It’s worth noting that the 10 year repair cover will only apply to new build homes for the first decade of the property’s life or until the Shared Ownership reaches 100% ownership – whichever comes first. If the home is resold through the Shared Ownership scheme within this 10 year period, the remaining years will be transferred over to the new shared owner. 

Buying additional shares

Shared owners now have the ability to buy additional shares in their home, known as staircasing, in 1% increments.

Shortened nomination periods

If a shared owner wants to sell their home, the housing association will give a four week period in which they have exclusive rights to market the property. If the provider isn’t able to find a buyer to purchase the property within this time, the owner can choose to market the property privately or on the open market. This reduction from eight weeks to four weeks gives customers greater control over the resale process.

Longer leases

Leases on new build homes increased from 99 to 990 years, helping leaseholders to save on the extra cost of extending their leases.

A Right to Shared Ownership

A Right to Shared Ownership is also available on the majority of rental homes delivered through the Affordable Homes Programme, providing a pathway into ownership by giving tenants the right to purchase a stake in their home through Shared Ownership.

The majority of rented homes built through the programme will have the Right to Shared Ownership, although there will be certain criteria that tenants need to meet to be eligible which can be found on the government website here.

In the present day, Shared Ownership has evolved to suit the UK Government’s ambition to encourage home ownership and to combat changes like significant rises in the cost of housing.

As a result, a customer who has been living in a Shared Ownership property for many years is likely to be different to a customer who has recently purchased a property. Shared owners now are likely to have certain characteristics:

• Typically younger than the average first time buyer
• Have an income that is lower than the average first time buyer^*
• Purchase a more expensive property (£261,000 Shared Ownership v £190,000 Mainstream)
• Have a lower deposit (£7,600 Shared Ownership v £32,700 Mainstream)⁴

Ultimately, any customer who can afford the mortgage and rental payments, can save a minimum 5% deposit (based on the share they are purchasing) and falls under the minimum income criteria could be a Shared Ownership customer.

^*Income for the whole account, joint incomes are added together.

⁴Based on data taken from Leeds Building Society comparing average Shared Ownership to Mainstream first time buyers in 2021. Data only for new purchases, all applicants on account are first time buyers.

The scheme was initially targeted towards key workers and existing social housing tenants. However changes have been made which have opened up the scheme’s availability; with the key differences being the removal of the key worker priority in 2011 and changes to maximum income (now £80,000 outside London, and £90,000 in London). These changes recognise that house price growth has significantly overtaken wage growth, increasing the necessity of affordable housing. With these changes, the scheme is now available to more people than ever before.

First time buyers outside of London are increasingly using Shared Ownership as a way to get on the property ladder, according to our new data.

Areas of the UK experiencing growth over the last three years include the South East, where the number of Society borrowers rose from 23% in 2019 to 28% in 2021, the East Midlands (8% of borrowers in 2019 to 10% in 2021) and the West Midlands (7% of borrowers to 9%).

Meanwhile, the proportion of our Shared Ownership members buying in Greater London over the past three years has remained steady at 13%. However, purchases decreased in some areas like the North West (12% of borrowers to 8%) and Yorkshire (6% of borrowers to 5%).

An average of three out of five of all shared ownership buyers over the last three years bought homes in UK regions outside London and the South East, with areas including the South West (14% in 2019, 10% in 2020 and 15% in 2021) proving popular.⁵

The fact that the scheme has been able to support so many customers in areas where property ownership remains an aspiration (that many believe they will never achieve) is a testament to why it is now perceived as “The Fourth Mainstream Tenure” behind ownership, private rent, and social rent.

It also helps answer the concerns of ‘Generation Rent’; with the perception that ownership is expected to become increasingly out of reach for younger people, Shared Ownership presents a viable and attractive alternative option.

⁵Research based on Leeds Building Society Shared Ownership lending between 2019 and 2021.

Once a customer purchases a Shared Ownership property, many will simply maintain their position (paying their mortgage and their rent). Shared Ownership was sold on the basis that one day a customer can purchase more shares and eventually own their property outright. However, for some shared owners it’s not their desired or expected outcome. In this section, we’ll explore what options are available to shared owners.

• Staircasing
  • This is a process by which a customer purchases a larger share of their property (in minimum increments of 1%). This means they’ll own a larger share of the property, and as a result will pay less rent to their landlord.
  • To staircase, a customer must approach the landlord and a valuation will be required (as additional shares are based on the property’s current value).
  • When this valuation is confirmed, the customer will be expected to provide the funds for the purchase. The easiest way for this will typically be for the customer to approach their current lender for a further advance, however customers can also remortgage and obtain further borrowing.
  • Otherwise, purchasing additional shares is broadly the same (in terms of requiring solicitors) as a new purchase.
  • As a result of the requirement for valuations each time the customer wants to purchase an additional share, many customers will try to minimise the number of times they staircase. A popular option is to remortgage and buy out the entire remaining share (therefore becoming a standard residential customer).
• Remortgaging
  • Like staircasing, the customer must first approach the landlord in order to obtain permission to remortgage. The housing association will usually approve – unless the customer is intending to remortgage for the purposes of debt consolidation.
  • After permission is granted, the process follows much like any standard remortgage.
• Selling the property
  • There is an active resale market for Shared Ownership.
  • To sell the property the shared owner must contact their landlord. Sometimes, the landlord reserves the right to find a buyer for the property, typically for four weeks. This is because there are often waiting lists for Shared Ownership properties.
  • If the landlord doesn’t find a buyer, the customer is free to advertise the property on the open market through an estate agent of their choice. They can sell the property for the share that they own, and the property will be sold to the next customer on a Shared Ownership basis.
  • When the property is sold, the customer can use the receipts to purchase another Shared Ownership property – or they could use it to go and purchase a mainstream residential property.

Over 200,000 households currently live in a Shared Ownership property.⁶

The market demonstrated growth with an increase in starts and completions of construction of new shared ownership homes. However this reduced in 2020/21 (as was the case with all affordable homes). The Department for Levelling Up, Housing and Communities (DLUHC) suggest this may be due to the Covid-19 restrictions implemented in 2020.⁷

The Government has announced a new £11.5bn Affordable Homes Programme (AHP) 2021-26 and is expected to deliver up to 90,000 new shared ownership homes. Properties delivered in previous funding may be subject to rules outlined in the document here.

⁶https://commonslibrary.parliament.uk/research-briefings/cbp-8828/
⁷https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1034043/AHS_2020-21.pdf
^{Table 1}Affordable housing supply statistics (AHS) 2020-2021

• There are mortgages available to customers with no deposit (100% loan to borrower (LTB) share).
• There are a number of lenders active within the market.
• Typically, providers of higher LTB mortgages are building societies, with banks requiring a larger deposit.

• In order to be eligible for the scheme, there are some key requirements for homebuyers to meet. Homebuyers must:

  A full list of eligibility criteria for Shared Ownership can be found on the government website here.

  • Either be a first time buyer unable to afford a home suitable for their needs on the open market, or a previous home owner who can no longer afford one.
  • Have an annual household income less than £80,000 (£90,000 in London)
  • Purchase between 10% and 75% of the property initially
• Their combined rent and mortgage payments may be lower than private rental, and equivalent 95% standard residential loans – and have associated benefits in terms of deposit and required incomes.
• Initial rent on the unowned share is typically set at 2.75% and rises each year at RPI +0.5%.
• Shared owners can purchase additional shares in the property (in a process called staircasing), typically in 10% increments, up to 100% ownership – and therefore no longer have to pay any rent.
• When they choose to sell the property (assuming they haven’t staircased to 100%) they must first approach the housing association who has some time (known as the nomination period) to find a buyer. After this, the customer can sell their share on the open market (but it remains a Shared Ownership property). They can then purchase a new mainstream property or use the receipts to fund a new Shared Ownership purchase.