Shared ownership risks becoming “financially unsustainable” for lower-income buyers, warns a report published this week.
The report, Shared ownership: the consumer perspective, reveals how more than one-third of shared owners display indicators of financial vulnerability, with lower financial resilience and lower financial capability compared with other homeowners buying with a mortgage.
The findings will be of considerable concern in Croydon, where a great emphasis in its new builds has been on delivering shared ownership properties as a means of meeting “affordable” housing requirements.
Some 50per cent of all the homes built by Brick by Brick, the failed, council-owned housing company, were supposed to be “affordable”.
Of these, the vast majority went on sale as shared ownership homes – although only after a considerable delay because BxB’s management never managed to get themselves registered as licensed shared ownership property suppliers.
Although Brick by Brick was the creation of a Labour-run council, the company, established in 2015 and now in the process of being wound up, delivered very few council homes for social rent.
This week’s report comes from the Shared Ownership Resources platform, launched by former shared owner Sue Phillips.
It warned that while the product – which sees buyers purchase an equity stake in a property and paying a reduced rent on the remaining share – is “the cheapest entry point to home ‘ownership’,’’ it becomes increasingly difficult over time.
This is because rising rents, service charges and ground rents chip away at the financial resilience of buyers who were required to take on as much as they could possibly afford at the start.
The report pointed to a Homes England calculator, which requires buyers’ incomes to be assessed, with 40per cent of their income in London being deemed an “affordable” purchase.
This means that if buying, for example, 25per cent of the equity would cost 30per cent of their household income, they would be required to buy a higher percentage in order to get the home.
But with rents rising annually at retail price index of inflation plus 0.5per cent, service charge increases, ground rents and lease extension payments, a buyer’s housing costs can rise sharply over time.
In May, the Bank of England put up interest rates for the 12th time in a row, increasing them to 4.5per cent, their highest level for almost 15 years. And this is now being reflected in many people’s mortgages, including those who bought through shared ownership schemes.
Some shared owners have also been caught up in the building safety crisis, due to associated costs for insurance and interim safety measures.
“Shared ownership is the cheapest entry point to home ‘ownership’ due to the relative affordability of a mortgage deposit on a part share,” the report says.
”But the longer the shared owner remains in occupation, the more likely the purchase will represent poor value for money. This is due in large part to ‘upward-only’ annual rent reviews at a premium to inflation and 100per cent liability for uncapped and poorly regulated service charges.
“Over time, total housing costs may rise well above the level determined as affordable during the initial affordability assessment.
“In some cases, shared ownership will become financially unsustainable over time, leaving households vulnerable to risks of financial hardship, poverty or even repossession.
“Improved national monitoring data is urgently required to assist better understanding of the demographics for whom shared ownership remains affordable and those for whom it does not.”
Analysis by the Joseph Rowntree Foundation suggested that around one-fifth of shared owners are in poverty, double that found for households buying outright with a mortgage.
The report said that too much emphasis is placed on initial access and far too little on longer-term outcomes and impact for entrants to the scheme. The report described the initial affordability assessment’s focus on short-term costs as “unhelpful” in assessing the ongoing financial sustainability of the purchase.
Additional research by the Joseph Rowntree Foundation found that between 2010 and 2021 shared ownership rents (22per cent) had risen faster than average rent increases seen for both social (3per cent) and private renters (10per cent).
And those in shared ownership homes who seek to increase their share of the property over time – a practice known as “staircasing” – end up getting stung financially in another way, too.
Assuming a shared owner purchased a 50per cent initial share of a property with a market value of £300,000, that first share would cost £150,000.
If they staircased to 100per cent 15 years later and the property had increased in value to £500,000, the second share would cost them £250,000.
Housing associations which sell shared ownership properties will benefit from the uplift in value, but the shared owner could pay more for a property that would have been much cheaper had they been able to buy the property outright.
The report also criticised a lack of national data on long-term outcomes for shared owners, such as full lifecycle costs, exit routes and transition to full homeownership.
In fact, the research suggested that a significant number of households are unable either to staircase to 100per cent or to transition to full ownership via a gain on sale.
The report noted that testimonials published by housing associations and their agencies suggested high initial satisfaction levels. However, shared owner satisfaction rates are considerably lower than for social renting tenants and declines over time, the report said.
Other areas of dissatisfaction include short leases, the imposition of ground rent and exclusion from the statutory right to lease extension and restrictions on subletting.
In her foreword to the report, Paula Higgins, chief executive of the HomeOwners Alliance, said that shared ownership is “targeted at first-time buyers who cannot afford the full market cost of a property.
“But the reality is that this type of tenure falls short of delivering these policy aspirations for a significant number of shared owners.
“As one of the few organisations that first set out to consumers what to watch for when considering shared ownership, we know that full staircasing is rare, paying for the full maintenance and service costs when you only own a slice of the property is unfair, selling can be tricky and – as this report illustrates – there are many other flaws with the shared ownership model.”
Read more: Brick by Brick’s shared ownership flats are far from affordable
Read more: ‘The Tories in England are enthusiastic only about ground rent’
Read more: Shared ownership is an unaffordable joke, says Standard
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