1.1.1 Shared Ownership is one of two products under the Help to Buy branding. The other is Help to Buy - Equity Loans. This chapter sets out the Agency’s requirements that apply to Shared Ownership schemes.
1.1.2 Sales through Social HomeBuy and the Right to Acquire, together with their associated funding criteria, are covered in other chapters of the Affordable Housing Capital Funding Guide. Please follow the above links for access to these products.
1.1.3 Shared Ownership properties developed within the 2011-15 AHP can be converted or rehabilitated homes.
1.2.1 Shared Ownership (SO) in its current form was introduced in the 2011-15 AHP. It covers all properties developed with grant funding specifically for sale on shared ownership terms from April 2011. It includes properties developed in/for:
Funding for self-builders is also included.
For further details on these options, please see relevant entries below.
Please note that SO does not include rented property sold on shared ownership terms, such as Social HomeBuy.
1.2.2 Schemes given grant confirmation before 1 April 2011 must follow procedures as set out in previous versions of this guide which will remain relevant throughout the development of the scheme; unless they are included as ‘conversions’ in RPs 2011-15 AHP offers
1.2.3 Properties funded as Social Rent under previous programmes may be converted to Shared Ownership as part of an RPs 2011-15 programme offer. In such cases all of the following requirements and guidance in this chapter apply.
1.2.4 RPs may also offer Affordable Rent properties to the existing tenants on Shared Ownership terms at the end of their tenancy. In these cases there are some differences, in particular to notifications to the Agency, customer eligibility and the role of the Local Help to Buy Agent. For further details follow the link.
An applicant offered a property on Affordable Rent terms has the option to purchase that property on shared ownership terms at the end of or during their tenancy.
RPs must notify the Agency of such sales, which will be administered in the same way as voluntary sales on shared ownership terms – please see Grant Recovery 3.5.
Properties must be sold on usual Shared Ownership terms, following the requirements and guidance contained within this chapter. The only variations to this guidance are as follows:
In such cases the sales receipt, including the appropriate proportion of Agency funding, will be expected to be reinvested in further new supply of AR properties.
When disposing of Affordable Rent property RPs are reminded that they will be subject to the Regulator’s Consents to dispose regime.
Shared Ownership may be provided using the following scheme types
New build including Acquisition & Works, Off the Shelf (does not include the purchase of a single property) and Works Only schemes;
Rehabilitation including Acquisition & Works, Existing Satisfactory*, Purchase and Repair and Works Only schemes.
*only applies where a property is to be provided through Home Ownership for People with Long Term Disabilities (HOLD) (please see 1.3.8 below).
Shared Ownership is very similar in nature to those products previously marketed as New Build HomeBuy and, pre 2006, Shared Ownership. In all of these products the dwellings are part-rent/part buy (i.e. the property title and equity are split between a residential owner and an RP) and are provided using a shared ownership lease (please see section 5). The term ‘shared ownership’ has a legal meaning and is used in this context.
For a brief explanation of how shared ownership works follow the link.
Purchasers of shared ownership leases are allowed to buy an initial share of not less than 25% based on a percentage of the full market value of the property.
The shared owner raises the funds to purchase their share in the normal manner i.e. some savings, possibly some family assistance, but primarily by taking out a mortgage from a bank or building society.
The RP then grants a leasehold interest to the shared owner. The shared owner occupies the entire dwelling, and pays a rent to the RP for the share of the property still owned by the RP (ex-RSL).
The rent level is set by the RP, but the annual rent at initial sale must be no more than 3% of the value of the property in the ownership of the RP.
Property value that Initial Sale: £200,000
Equity share purchased at Initial Sale: 30%
Payment to RP at Initial Sale: £60,000 (£200,000 x 30%)
Equity share retained by RP: 70%
Value of share retained by RP: £140,000 (£200,000 x 70%)
Max annual rent: £4,200 (£140,000 x 3%)
Rental payment: £350 pcm /£81 p wk
The leaseholder becomes liable for all maintenance costs on the property even if they only have the minimum 25% equity share.
Over time, the leaseholder can purchase further shares in the property. If they wish, they can in most cases purchase up to 100% of the equity in the property, thus becoming the outright owner. The only exceptions to this are the types of shared ownership in which the lease is subject to staircasing restrictions. Please see paragraph 1.3.7 for details.
Property value that Initial Sale: £200,000
Equity share purchased at Initial Sale: 30%
Payment to RP at Initial Sale: £60,000
Property value that Next Sale: £240,000
Equity share purchased at Next Sale: 30%
Payment to RP at Next Sale: £72,000
As the leaseholder purchases greater shares in the property, their rent falls according to the proportion of unsold equity.
Where the shared owner has become the outright owner of a house, the RP transfers the freehold of the property to the new owner. Where the leaseholder becomes the outright owner of the flat, the RP retains the freehold of the block of flats.
1.3.2 Shared Ownership (SO) is aimed at helping people in housing need who are unable to afford to purchase a property in the open market. SO is subject to applicant eligibility and affordability requirements.
It is anticipated that eligible applicants purchasing under the SO route will purchase a share in a property though
1.3.3 The following routes and products are available under the SO product and may be provided using grant:
For further details on these options, please see relevant entries below.
1.3.4 The minimum initial equity share that can be purchased is 25%; the maximum initial share is 75%. Further shares can be purchased at a later date; some restrictions might apply - see SO 7.2.
1.3.5 Purchasers should be encouraged to buy the maximum share they can afford and sustain.
Local Help to Buy Agents will undertake a headline affordability assessment at application stage to ascertain the maximum share that an applicant could afford and sustain. RPs must ensure a further rigorous affordability check is carried out taking into account savings and outgoings, to assess the sustainability of the purchase, and the share sold should reflect both of these two affordability assessments. For guidance see sections on applicant eligibility and affordability.
1.3.6 A self-build option can allow some of the equity to be based on the self builder’s notional labour cost during the construction period. For details on self-build, please see 1.3.21 below and the Glossary entry.
1.3.7 All sales must allow the shared owner to buy further shares and buy the property outright , with the following exceptions:
HOLD is SO, except that it is designed to assist people with a long term disability, to purchase a home more suitable for their needs, where such properties are not being developed by RPs. In the case of HOLD, applicants seek a more suitable property being offered for sale on the open market. For further details please follow the link.
It is anticipated that not all RPs will develop properties as part of their Shared Ownership or Equity Loan programme that would be suitable for people with long term disabilities.
“People with long term disabilities” is not defined for the purposes of Affordable Home Ownership (AHO), but would include people with learning difficulties. By way of an example, someone with a long term disability may have a need for a single ground floor property whereas only two floor properties are being developed under the RP’s programme, or an RP may not be developing SO within a reasonable distance of necessary support networks.
In such instances an RP who had contracted to provide HOLD as per the 2011-15 Affordable Homes Programme Framework would arrange to purchase a suitable property being offered for sale on the open market, and then sell the property to the applicant on standard SO terms.
Please note that recent changes to Support for Mortgage Interest (SMI) payments from the Department of Work and Pensions (DWP) may affect the ability of some applicants to afford and sustain a purchase via HOLD. However, the Agency will not prohibit applicants who would otherwise rely on SMI, provided that they can demonstrate that they are able to sustain their mortgage payments.
There is also additional guidance, including FAQs, available on the HCA website.
There are no additional HOLD applicant eligibility criteria and people with long term, or other disabilities would normally be expected to apply for SO without accessing the HOLD programme where RPs are developing properties that meet their individual needs.
1.3.9 It is expected that RPs assisting purchasers via HOLD will have had experience of working with and/or providing on-going support for the client groups they are proposing to assist.
1.3.10 HOLD will comply with all the requirements elsewhere in the programme and the Agency’s model SO lease requirements (i.e. fundamental clauses, initial rent, staircasing opportunities). However, because the RP has not developed the property as part of its SO development programme there is an opportunity to offer, and include in the lease, an optional repairs and maintenance service paid for by the leaseholder. There is no requirement for such an optional service to be part of the Agency’s fundamental clause (please see 5.6.5).
This product is the same as SO, except that its provisions extend beyond then time when the leaseholder staircases to full ownership, and wishes to sell the property. It enables RPs to repurchase the property from the outright owner (at full market value) in order to resell it on a shared ownership basis to another local person in housing need.
1.3.12 This scheme only applies in settlements with a population of up to 3,000, and to leaseholders who were granted a shared ownership lease prior to September 7th 2009 when the requirement to issue Protected Area shared ownership leases was introduced (please see paragraph 1.3.32 and section 9).
1.3.13 This ensures that grant funded low cost housing in rural areas, where the provision of replacement housing would be difficult, can be retained for the benefit of local people.
1.3.14 The Agency will endeavour to make grant funding available to fund rural repurchases, where the homes are required to remain affordable in perpetuity, only when all other funding options have been explored and exhausted by RPs.
Applicable to rural exception sites only, this allows RPs to restrict the limit on staircasing on grant funded shared ownership property to a maximum of 80% of the value of the property. The shared owner will continue to pay rent on the remaining 20% of the property.
1.3.16 Rural Restricted Staircasing may be used in conjunction with Rural Repurchase.
1.3.17 RPs will need to take their own legal advice as to the appropriateness of this option but must be aware of the limited range of mortgage products that may be available to prospective purchasers as a result of its use.
OPSO operates on shared ownership principles but with some differences from the Agency's regular SO product:
Please follow the link for additional guidance.
The Agency has been advised that OPSO is exempt from leasehold Protected Area legislation requiring shared ownership leases in proteced areas to allow leaseholds to staircase to at least 80%
1.3.19 RPs must give priority to people who are unable to afford the full costs of purchasing sheltered accommodation.
1.3.20 RPs must not consider any sale to a person younger than 55. The Housing Ombudsman Service has ruled that sales to someone not meeting the age restriction could be a breach of the terms of the lease.
This is SO, except in respect of the manner in which the property is constructed. For more details, follow the link.
Potential shared owners can reduce the cost of developing the properties by contributing some of the construction labour themselves. This contribution to the development costs by the self-builder is recognised by the vendor who assigns a share in the equity of property to the self-builder equivalent to the value of the labour which the self-builder provided during the construction process.
Please note that “self-build” in this context is different from “Self Build” property that was previously funded by the Housing Corporation and developed for outright sale by a mutual co-operative Self Build Group. Please see the Glossary entry for details of the distinction between the two.
1.3.22 Self build schemes developed for Shared Ownership must be financially viable and must look to demonstrate a maximum scheme cost/value relationship of 80% i.e. the costs of the scheme must be at least 20% less than the value of the completed properties. Any schemes that fall short of this criterion will be subject to technical assessment by the Agency.
1.3.23 RPs must also ensure that:
Protected Areas are as detailed in the Housing (Right to Enfranchisement (Designated Protected Areas) (England) Order 2009 (Statutory Instrument 2009/2098). These are settlements also currently designated as being exempt from the Right to Acquire (i.e. with a population of less then 3000). Locations currently covered by the above Order may be subject to review in due course by Communities and Local Government. The maps referred to in the regulations are available in electronic format from rural champions at local offices of the Agency. To obtain a copy of any of the maps please contact firstname.lastname@example.org.
1.3.25 Due to a previous anomaly in the law (Statutory Instrument 1987/1940) relating to leasehold enfranchisement and shared ownership leases of houses, the Housing (Shared Ownership Leases (Exclusion from Leasehold Reform Act 1967) (England) Regulations 2009 (Statutory Instrument 2009/2097) were enacted with effect from 7th September 2009. The Regulations set out the criteria that a shared ownership lease must fulfil so that even if the tenant cannot acquire 100% of the property, the tenant cannot exercise their right to enfranchise under the Leasehold Reform Act 1967. For further detail please see the link.
Before the enactment of the regulations, restricting staircasing carried the risk of “early” enfranchisement, i.e. that the shared owners of houses could purchase the freehold under rights in the Leasehold Reform Act 1967 before they owned 100% of their home. This is because; under that legislation RPs were only protected from the risk of early enfranchisement if their shared ownership leases allowed purchasers to eventually staircase to 100%. If staircasing was restricted as a means of retaining shared ownership properties as affordable, RPs would not be protected under the legislation and would be at risk of early enfranchisement. It is possible in some circumstances for RPs to rely on “the low rent test” to avoid early enfranchisement but this is an old mechanism which has gradually been phased out and around which there is some confusion.
This was a risk for shared ownership houses only, not flats, since under current legislation the tenant’s share of a shared ownership lease of a flat must be 100% before the lease is regarded as a long lease for the purpose deciding whether or not the tenant has the right to join together with other tenants to buy the freehold of the property containing their flats (collective enfrachisement).
1.3.26 The Agency’s Protected Area policy is designed to maintain availability of Shared Ownership properties within these areas. Although the Regulations only apply to houses, (for the reasons set out above) it is the Agency’s policy that it will apply the requirements for retention in the legislation to grant funded shared ownership schemes for both flats and houses developed in Protected Areas.
1.3.27 The Agency has included the requirement to retain flats in its Protected Areas policy for the following reasons:
1.3.28 The new legislation aims to ensure that low cost shared ownership property in difficult to replace areas can be retained for the benefit of local people.
1.3.29 A key aspect of the above Regulations is that shared ownership leases issued in respect of property in Protected Areas must contain certain clauses as outlined in that legislation to retain the property as shared ownership for future purchasers. Shared ownership leases in Protected Areas must include a requirement either:
1.3.30 From 1 April 2011, if a Local Authority considers a development that is situated within a Designated Protected Area does not need to be protected in order to retain properties as shared ownership for future purchasers, then they can apply to the Agency for a waiver of DPA grant conditions on a site specific basis. For further details see the DPA announcement on the Agency website.
1.3.31 Where cases are supported by the Local Authority and waiver of DPA grant conditions is approved by the Agency’s Operating Area, RPs can develop properties for sale as Shared Ownership without the requirement to include one of the two DPA lease clauses set out at 1.3.29.
1.3.32 For further information on Protected Area lease requirements see section 5.
1.3.33 For further information on additional grant eligibility requirements for Protected Area schemes (see section 9).
This product is still SOHB, except that the provisions only apply when the leaseholder staircases to beyond 80% and wishes to sell on. It enables RPs to fulfil the legislative requirements and repurchase the property from the (former) shared owner (at full market value) in order to resell it on a shared ownership basis to another local person in housing need.
1.3.35 Where RPs have robustly explored and exhausted all other funding options, including the use of and transfer of RCGF, the Agency will positively consider applications to fund the repurchase of grant funded property within a Protected Area.
Protected Area legislation allows landlords to restrict the limit on staircasing on shared ownership property in Protected Areas to a maximum of 80% of the value of the property. Where a shared owner has purchased shares to the maximum of 80% they will be required to pay rent on the remaining 20% of shares retained by the landlord.
1.3.37 Alternatively landlords can permit the shared owner to acquire more than 80% of the property, but in this case the Protected Areas repurchase provision must apply (please see section 9).
1.3.38 Landlords will need to take their own legal advice as to the appropriateness of these options, and which one to use. Landlords must be aware of the potentially limited range of financial products which may be available from lenders to prospective purchasers should they restrict staircasing to 80%.
1.3.39 If RPs consider that the nature of their proposed development does not require protection, they should approach the Local Authority in the first instance, who if in agreement may approach the Agency as per 1.3.30.