Shared ownership, where an individual buys a share of a house and then pays rent on the remaining share, has become an increasingly attractive affordable housing option, with around 200,000 households living under such arrangements.
Recently, there was a confirmation by the Secretary of State for Housing that there will now be a ‘Right to Shared Ownership’ for housing association tenants in newly built dwellings, allowing them a minimum initial stake of only 10%, in comparison to 25% for other shared ownership schemes. Furthermore, all shared ownership owners will now be able to buy additional shares of their home in 1% bits, rather than 10%, a practice known as ‘staircasing’. In theory, both changes should increase the accessibility of home ownership.
In terms of the initial share, there’s evidence that the existing rules already significantly lower barriers, primarily due to reducing the size of the mortgage that the buyer has to borrow. For example, the absolute minimum annual income required to obtain a mortgage for a £230,000 home is £48,600 with a 5% deposit, whilst with 25% shared ownership it is only £21,600. However, only 5% of shared ownership buyers were social housing tenants before their purchase, while 85% were private renters or were living with friends and family before buying. So, up to now, the scheme has been mostly inaccessible to those living in the social rented sector.
While lowering the minimum share to 10% reduces the size of the initial mortgage even further, this is still unlikely to be of significant help to most housing association tenants. Recent official surveys show that the average weekly income of a housing association household is £412, in comparison to £728 of private renters and £941 for owner occupiers. So, unsurprisingly, 83% of social renters do not have any savings at all. While 12% of social renters had more than £1,000 savings, making it possible that they could benefit, it is important to note the age distribution of this group, with majority (67%) of such people being 55 or older, who are also unlikely to benefit from this scheme.
In contrast, the changes to the staircasing could be quite significant to potential and existing shared ownership buyers. Currently, staircasing is an uncommon practice, with only 0.6% of shared ownership households partially staircasing and 1.3% staircasing to own the property fully in 2016. The transaction costs are a significant factor in dissuading staircasing, as buying each share is accompanied by survey, legal and mortgage fees, while some housing associations also limit the number of times a household can staircase. This forces households to wait as long as possible until they buy an additional share, but this means that some, particularly in London and South East, are priced out as house prices outgrow earnings. Allowing people to buy shares as small as 1%, along with the promised streamlining of fees, should greatly decrease the barriers to staircasing.
The new ‘Right to Shared Ownership’ is unlikely to have significant impact as the number of housing association tenants who could benefit from the new scheme is small. For better or worse, this is not the ‘Right to Buy’ for housing association tenants that Conservatives have repeatedly considered. Much more attention should be paid to the changes to staircasing and whether they encourage significantly higher rates of partial staircasing. It is here where a genuine increase in homeownership could be observed.
Anvar Sarygulov is a researcher at Bright Blue
