Tackling the affordable housing crisis – The Mutual Home Ownership Society

Interest in establishing a Mutual Home Ownership Society (MHOS) is growing among CLH groups. We explore what it means to be an MHOS & how it works.

Over the past few months, we have received an increasing number of enquiries from groups who are seeking to establish a Mutual Home Ownership Society (or MHOS). Mutual Home Ownership is a form of property tenure that seeks to increase the supply of relatively affordable housing and enables those on a low or intermediate income to obtain an equity stake in residential property.  

We have been involved with a number of MHOS’s over the past few years. As examples, we have worked with Lilac in Leeds, one of the pioneer MHOS’s in the country, and are currently building on the model they created, to develop an MHOS with Yorspace and Lowfield Green Housing Co-op in York.

In this article, we try and demystify what it means to be an MHOS and how it works.

What legal structure is an MHOS?

If you have been to any of our events, you’ll have heard us talk a lot about “resident owned” and “community owned” developments. By resident owned, we mean structures whose members are the people who directly benefit from the organisation's housing assets (i.e. the members live there). An example would include a housing co-operative. By community owned, we mean structures whose members may include people who live in the homes they develop, but there are also members from the wider community within which the community-led housing group is situated (e.g. a community land trust).

MHOS’s are resident owned structures and most MHOS’s that we are aware of adopt a housing co-operative model. Co-operatives UK sponsor a set of model rules for an MHOS.

The members of an MHOS will elect a board of directors who control the day to day management of the MHOS within policy set by the members.

The key documents that make up an MHOS are its rules (constitution), leases and, in some cases, equity unit agreements. The rules set out the constitutional relationship between the members, the directors and the MHOS, and their respective rights, and the decision making processes of the MHOS. The leases set out members’ occupancy rights and responsibilities. They may also set out the arrangements relating to that member’s equity units (more to follow) and the payment that members can expect to receive when they leave the MHOS, although we are increasingly seeing these matters set out in a separate equity unit agreement (again, more of that below). Ultimately these documents all need to sing together to ensure that the only members of the MHOS, are its only tenants, and are its only equity unit holders.

Great, so if I’m an MHOS resident I will hold a long lease from the MHOS in respect of my property (much like with some cohousing groups).

No. It is likely that you will hold a relatively short lease.  There is no reason that the lease should not be monthly as a member’s right to occupy is linked to their membership of the MHOS not the lease itself.  However, we find that most individuals want a longer lease than that and that MHOS’s generally look at terms of between 7 and 21 years.  Longer than 21 years is not advisable because of the risk of enfranchisement that this brings (i.e. the right to buy the freehold and thus remove the property from the MHOS).

As such, the value that a member holds in the MHOS is not a property asset, but in the value of equity units issued to him/her by the MHOS.

Can you tell me more about these equity units?

Of course. The costs incurred by the MHOS of buying the land, and building the homes (probably financed by a bank loan) are divided into property equity units. Some MHOS’s refer to these as equity shares, but our interpretation is that they are not a “share” in the common sense of the word, more like a debt. Members may pay a deposit and will be allocated equity units pro rata to the development costs of their home to those of the wider project. Members then pay off their equity units through monthly payments. The monthly payment will cover management, maintenance, insurance and service costs of the property along with interest and capital repayments to the bank or other lenders. The monthly payments ensure that the MHOS can meet its debts and other liabilities.  

How do I get my money out of the MHOS if I decide to move out of my house?

If you decide to leave the MHOS you will be entitled to receive from the MHOS repayment of your equity units in an amount equal to those equity units which you have paid off through your monthly payments. Clearly the MHOS will only be able to repay your equity units if it has the money available to it to do so. Over time, the MHOS will build up a pot of money from which equity units can be repaid, but it may well be the case that you cannot have your equity units repaid until a replacement member has been found to service the equity units that were originally allocated to you. It may also well be the case that the MHOS needs the right to limit the number of members that can leave the MHOS in any given period, to ensure its financial stability.

Much of this is not wholly dissimilar to when someone comes to sell a private dwelling. In most cases they need to find a purchaser so they can repay their mortgage on that property, and buy a new property.

Okay, so where does affordability come into all of this?

Different MHOS’s use different techniques for ensuring the affordability of their housing. For example, at Lilac, the level of monthly payments are linked to a member’s income and ability to finance them, which are generally set at around 35% of a member’s net take home pay after tax, national insurance and other deductions. Lilac, Yorspace/Lowfield Green and other projects provide that, on leaving the MHOS, the amount that a member is due to receive in repayment of his/her equity units is index-linked to national or local average earnings, rather than the vagaries of the property market. This keeps the housing affordable for those buying into the MHOS at a later stage.

I’m in, let’s get going!

Woah, slow down.  We at Wrigleys can help you set up the model and put the documentation in place but you need to be sure your finances will work.  Although this is a relatively new model, there are specialist lenders out there who will work with MHOS’s but it is key to ensure your financial model is robust.