Government to release new model shared ownership lease

The government is due to release its new model shared ownership lease, following on from a recent consultation that drew over 250 responses.

Shared ownership gives people the chance to buy a share in a property, thus reducing their upfront purchasing costs. The purchaser pays a mortgage on the share they own and pays rent to (commonly) a housing association but can also be a community-led housing group on the remaining share. The housing association/community-led housing group becomes the buyer’s landlord on the unowned share.

This opens up the property market to those who cannot afford or borrow enough to buy outright on the open market. In this way, shared ownership corresponds to the stated government aim of offering a route into home ownership to those who would otherwise struggle to afford a home. It is not without controversy as ongoing costs (eg. service charge) do not necessarily reduce to reflect the part ownership.

To this end, the government is investing £12.2 billion in affordable housing between 2021 to 2026. This investment includes the £11.5 billion Affordable Homes Programme that aims to deliver 180,000 homes, providing economic conditions allow. 50% of the new homes delivered will be available as affordable home ownership with the vast majority of these using the reformed new model shared ownership lease.

What are the key changes the shared ownership model lease will introduce?

Reduction of the initial minimum stake

Previously, the minimum stake to purchase a share in a shared ownership property was 25% of its value. This has been reduced to 10% of the value to increase accessibility to those on lower incomes.

Gradual staircasing

Shared ownership owners have always been able to increase their stake in their home and buy out the housing association/other owner. Buyers will be able to increase their equity in their property by increments of just 1% under the new model. Previously the minimum increment was 10% which was sometimes unaffordable. This will also be more affordable as leaseholders will no longer need to instruct a surveyor to carry out a valuation and housing associations will not be able to charge administration fees, as they previously could.

Repairs and maintenance

This marks a significant departure from the previous shared ownership model, as buyers will receive support from their landlord for essential repairs for ten years. Where a buyer sells their property interest after five years, the new buyer will benefit from the policy for the remaining five years.

External repairs

Landlords will be responsible for the cost of essential repairs to the external fabric of the building, as well as walls, floors, ceilings and stairs inside the property, but only where the repair is not covered by a new build guarantee.

Internal repairs

Buyers can claim costs from their landlords for the essential repair or replacement of certain items, including gas and electricity installations, as well as baths and sinks. Generally, buyers will remain responsible for repairs inside the property, but can now also claim repair costs of up to £500 per year that can be rolled into the following year if a repair is not due to improper use.

990 year lease

The new model lease increases the term on new build homes from 99 years to 990 years. This is a potentially huge saving for leaseholders and potential homeowners who can avoid expensive lease extensions.

Conclusion

According to government publications, the reforms to the model lease will introduce a fairer and more transparent shared ownership model. There is no indication as yet how these reforms will impact the shared ownership market, or whether they will further incentivise lower income households to enter the property market. Shared ownership is already a popular affordable housing product and the reforms should theoretically make it even more attractive through introducing a cheaper route to 100% property ownership and reducing maintenance and additional costs, amongst other changes.