At the beginning of the decade, the average rent in Hackney for a two-bedroom flat would be £350 a month and in 2014, rentals for the same property now exceed £1000. Having grown up in Hackney, I have first-hand experience of this, the family home that my parents sold in 1977, for £8,500 rose in value in the year 2000 to £300,000 and when I recently checked, it is now valued at just over £1 million.
With more and more people and families being forced out of the housing market an urgent solution was required to prevent large exoduses of people and families from the Metropolitan areas. Similar issues began to affect rural areas particularly in counties such as Cornwall which is traditionally a popular holiday resort and choice for the wealthy to purchase their holiday homes and where underneath the holiday character of such areas are low skilled and low paid populations who were being priced out of their home towns where they have lived for generations.
One of the Government’s solutions to the rapid decrease in the supply of affordable housing was to increase the number of schemes for “Affordable Housing” the most notable of these being an expansion of the concept of Shared Ownership housing. Although not a new concept, the Government, (through the auspices of the Homes and Communities Agency (“HCA”)) substantially expanded the provision of Shared Ownership properties.
What is Shared Ownership?
A Shared Ownership Scheme enables a buyer to purchase a “share” of the property and to rent the un-owned share from the housing provider. An example would be where a buyer wishes to purchase a property which is worth £100,000 and buys a 50% share for £50,000 the buyer will then pay rent to the housing provider (usually a Housing Association) on the remaining 50% of the value of the property. Over time and depending on the scheme, the buyer may purchase further shares in the property and as they do so, the rent payable on the un--owned share will reduce until they own 100% of the property, at which point they will no longer have to pay any rent.
The rents payable are generally lower than the open market rents and are typically 1-3% of the value pf the property which is not being purchased.
Provided mainly by Housing Associations and other social housing organisations, Shared Ownership Schemes are aimed at people whose income is too low for them to be able to afford to purchase a property in the same area on the open market.
Shared Ownership properties are in the main, new build properties (although there are some schemes where local Housing Associations have refurbished properties for Shared Ownership). In light of the fact that a large percentage of Shared Ownership properties are new build properties they offer the buyer a higher standard of accommodation than they would normally be able to afford on the open market.
Shares in the Property generally start at around 25% with the buyer having to purchase a minimum of at least a further 25% each time they decide to increase their ownership in the Property, a process known as “Staircasing”. In the majority of Shared Ownership schemes the buyer can purchase up to 100% of the value of property, however some schemes limit the maximum share to 75%.
The types of schemes on which the 75% limit is imposed tend to be those in rural areas (where there is a shortage of affordable local housing these areas being designated as “Protected Areas”), schemes for older people (50 years old plus) and those schemes for the disabled and elderly. The 75% Is imposed to prevent the value of the property from increasing in line with the open market and aimed at retaining affordable housing within a particular area or housing sector in perpetuity.
Staircasing is usually upward, in other words, as the owner purchases further shares they own more of the property. In exceptional circumstances (for example as a result of mortgage difficulties or a reduction in income) the option to sell shares back to the Housing Association “downward” staircasing may be available, thus enabling the owner to remain in their home and avoid repossession. The availability of “downward” staircasing is becoming increasingly rare as Housing Associations experience an ever increasing squeeze on their funding. Downward staircasing is not popular with mortgage lenders and as a result, the Shared Ownership leases which expressly have a provision for downward staircasing make the property less mortgageable and as such have been largely phased out.
As mentioned earlier, most Shared Ownership properties are newly built properties and are within a mixed housing development having been sold to Housing Associations at discounted prices by the developer/builder under obligations imposed by the Planning Consent granted to the developer/builder for the development.
Shared Ownership properties are held under leasehold titles (with leases being granted for terms of 99 or 125 years) until the buyer is able to purchase 100% when, unless the property is a flat, the freehold title in the Property will be transferred to the buyer.
Until the buyer owns 100% of the property, the Housing Association will insure the property and, in the case of flats, will maintain structure (main walls, roofs, foundations (and so on) of the property.
Until 100% ownership is achieved, the occupancy and use of the property will be governed by the terms of the Lease granted to the buyer, for example the buyer will have to obtain the consent of the Housing Association to alter the property and will be prohibited from letting the property out.