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Shared Ownership: The Consumer Perspective

Shared ownership sharply divides opinion. Is it a “great product” as claimed in a Shared Ownership Market Review 2020? Is it a ‘scam’ – an accusation that at least one housing association apparently feels obliged to counter on their website: “Rumour has it though… Shared Ownership must be a scam – it seems too good to be true!” Or does the truth lie somewhere in-between?

It’s undeniable that many shared owners are extremely happy with their home purchase. And yet… In December 2021 Housemark published analysis revealing that only 57% of shared owners were satisfied with their landlords.

My report – Shared Ownership: The Consumer Perspective – explores gaps between aspirations and outcomes. It does so by assessing claims made for the scheme: that it is affordable, a pathway to full ownership, fair, user-friendly and a good product for the market to deliver. The report concludes that, despite the benefits of the scheme, there are also hazards arising from the characteristics of targeted homebuyers, the complexity of the model and of ownership structures, a lack of standardisation and consistency, inadequate information provision and weak regulation of marketing and delivery.

Here I touch briefly on three key underlying themes: long-term outcomes, consumer protection and value for money.

Long-term outcomes

Somewhat surprisingly for an affordable housing scheme launched over four decades ago, there are significant gaps in national data. How many shared owners staircase to 100%? (Excluding ‘back to back’ sales where a homebuyer purchases 100% by purchasing the shared owner’s share and the landlord’s share at the same time.) How many transition to full home ownership via a gain on sale? Is shared ownership financially sustainable over the long-term? What are the whole-life costs, and what are the opportunity costs if shared ownership turns out to be significantly more expensive than buying on the open market?

And without this information how can we possibly evaluate whether shared ownership is delivering for entrants to the scheme? Consequently the report recommends that Government and the Regulator of Social Housing undertake robust data collection, evaluation and reporting on the outcomes that matter to shared owners themselves: ongoing affordability and/or transition to full home ownership.

Consumer protection

Shared ownership can be tricky to get to grips with. The costs aren’t ‘shared’ and it’s not exactly ‘ownership’ either. Moreover, the ubiquitous marketing slogan – ‘part buy, part rent’ – was recently deemed to be misleading by the advertising watchdog, the ASA.

The ASA also found that adverts that do not “include material information relating to the costs of extending a lease” are likely to mislead. How many shared owners didn’t receive the facts they needed at the point of sale in order to make informed purchase decisions, taking into account likely future lease extension costs?

Of course, it’s impossible to turn the clock back. But many shared owners now face a double whammy. If they can’t afford to extend their lease, even selling may not provide the panacea they hoped for. The new model for shared ownership, quite rightly, requires a significantly longer 990-year lease term. But this could create a two-tier market further disadvantaging existing shared owners. Surely it’s only right to level the playing field by funding lease extension at a nominal flat fee for all those shared owners persuaded to buy a short lease and not informed, at the time, of the implications.

The complexity of shared ownership means that sometimes even the experts get it wrong. It’s an open secret that many shared owners have overpaid Stamp Duty Land Tax (SDLT) on simultaneous sale and staircasing. Unfortunately, HMRC currently imposes a 12-month deadline for refunds of SDLT overpayments meaning shared owners could unknowingly be left out of pocket as a result of incorrect professional advice. It’s a situation that clearly shouldn’t be allowed to drag on.

Value for money (VfM)

Value for money for shared owners

The Government’s annual rent review policy ensures that shared ownership rent rises faster than inflation, on an ‘upwards only’ basis. Hence Savills’ assessment that – although shared ownership provides the cheapest entry point into home ownership – ‘monthly costs will rise faster than for full ownership’ which ‘ultimately leads to shared ownership becoming more expensive than full home ownership by the end of the mortgage term’. Many shared owners also report rapidly rising service charges.

As one shared owner explains in Shared Ownership: The Consumer Perspective: “I had to pass an affordability test with the housing association initially to see if I could afford to pay for the share of the flat and its associated costs. But now, nobody cares whether I still can afford it. If I could sell, I would… but I cannot. Absolute and utter madness.” 

Staircasing can also represent poor value for money. Unlike other instalment payment schemes where the initial cost is spread over a number of payments, shared ownership requires the prevailing market rate to be paid for each and every share. If property prices have increased since they bought their initial share, shared owners could pay considerably more in total than had they been able to afford to buy that home on the open market in the first place.

Value for money for taxpayers

Only around half  the shared ownership homes built to date remain categorized as shared ownership. Staircasing to 100% is, in some respects, a measure of success. It was, after all, the original intention that homebuyers purchase their home in full.  But 100% staircasing could be argued to be counterproductive in transitioning scarce social housing stock to the open market. As one senior housing professional pointed out on BBC Radio 4’s Money Box in 2020. “How high would you want those figures to be because what you’re doing is you’re losing affordable stock if people staircase out to 100% all the time.”

There appears to be even less justification for transfer of social housing stock to the open market via ‘back to back’ sales. What’s the likelihood of those homes ending up in the private rental sector, possibly subject to the unaffordable rents that drive many households to shared ownership in the first place?

The Shared Ownership: The Consumer Perspective report is aimed at decision makers in government, its agencies, regulators and housing providers, and makes a total of 18 recommendations. The Executive Summary and full report are available here.  A suggested donation of £8.50 helps support the Shared Ownership Resources project.

Sue Phillips (FCCA) is a writer, retired charity finance manager and former shared owner. She launched Shared Ownership Resources in 2021.

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