By Sue Phillips, Founder, Shared Ownership Resources

In a recent HQN Spotlight feature, Hannah Fearn suggested that, “shared ownership is the next housing crisis coming down the track – not only an economic disaster with real human cost, but also a massive PR grenade from which the pin has just been pulled”.

Fearn listed financial unsustainability arising from rapid service charge rises, high mortgage interest rates and rent increases, alongside resale difficulties, amongst the hazards of the scheme. Sadly, not one of these aspects was addressed by the draft Leasehold and Freehold Reform Bill.

However, the bill did have the potential to address other pitfalls unique to shared ownership. One of the three key aims of the bill was to make it easier and cheaper for more leaseholders to extend their lease.

As assured tenants, shared owners have never had a statutory right to lease extension, notwithstanding the fact that shared ownership homes have typically been sold with ‘short’ 99-year or 125-year leases. Although the ‘new model’ for shared ownership – introduced under the Affordable Homes Programme 2021-26 – offers 990-year leases as standard, it is not retrospective.

Homes England’s Capital Funding Guide explains the problems with short leases.

“Homes England’s model Shared Ownership leases were first issued in the late 1970s / early 1980s. Many of these leases would have been issued for a term of 99 years, and the remaining term would now be significantly less than this.

“We are aware that this may create difficulties for those shared owners now wishing to sell their share. Lenders have requirements on the minimum lease term they will consider to be adequate security. This may make it difficult for purchasers or those re-mortgaging to obtain a mortgage.”

Historically, shared owners could only extend their lease under the ‘informal route’, which offers fewer rights and protections than the statutory route. For many leaseholders, a statutory right to lease extension offers a vital mechanism to reduce ground rent to a peppercorn. But this option was not available to shared owners. Complex ownership arrangements could add further complications, and hence additional cost.

Worse, shared owners were not informed about the implications of short leases. Arguably, many were mis-sold their short leases – and, by the time they became aware of the issues, some shared owners had so few years remaining that lease extension was out of reach, particularly if they had already retired or were rapidly approaching retirement. Consequently, many shared owners had little option but to place trust in the bill to resolve the challenges they face.

Following an inquiry into the tenure, a cross-party group of MPs (the Levelling Up, Housing and Communities Committee) flagged up the need for government to “take urgent and significant action to reform how shared ownership schemes currently operate”. The committee specifically referenced the Leasehold and Freehold Reform Bill in its recommendations:

“The government should ensure that any legislation passing through parliament which has provisions to reduce the cost of, and simplify, the process of leasehold extension (for example, as in the Leasehold and Freehold Reform Bill) also applies to leaseholders in shared ownership properties, so that shared owners have the same statutory right to leasehold extensions as all other leaseholders.”

Unfortunately, it became apparent that the bill was not necessarily going to deliver for shared owners as they had hoped and anticipated.

Former shared owner, Lord Bailey of Paddington, proposed an eleventh-hour amendment that, within six months of the act being passed, the secretary of state should report to parliament on its proposals to “ensure a better deal” for shared owners on matters including (but not limited to) lease length, lease extension and proportionate liability for service charges.

The fact Lord Bailey felt the need to propose the amendment strongly implied that he felt there was a danger that the bill would not include shared ownership from some key reforms. If so, there was potential to further entrench disadvantage faced by shared owners, particularly those who bought their home prior to the introduction of the new model.

Despite these concerns, I find it hard to avoid the conclusion that the social housing sector has demonstrated little interest in long-term outcomes for shared owners. Although the House of Commons Public Bill Committee invited written evidence on the draft bill towards the end of 2023, none of the 62 written submissions was from a social housing sector body or provider of shared ownership homes. Nor were they represented in subsequent oral evidence sessions. There have been no public statements, or thought leadership, on the possibilities offered by the bill to resolve fundamental flaws in the shared ownership model. But how will such flaws be addressed, if not in legislation?

In short, the legislative process has shone a spotlight on the absence of advocacy for shared owners’ best interests. Even though, to have largely ignored the draft bill seems like an own goal on the part of the social housing sector. Surely it would have been beneficial to engage with proposed legislation that could have resolved one of the key drivers of a two-tier market – lease length? Would there be cost implications? Probably. (The impact assessment carried out for the bill understated provider risk in referring to “anecdotal evidence suggesting that removing marriage value and allowing leaseholders 990-year extension with zero ground rent has not led to negative outcomes for the landlord”, by overlooking the fact that MTVH’s otherwise laudable policy applies only where it is the freeholder.)

But what costs will arise from the reputational and sales risk that are an inevitable consequence if shared owners discover they have, as Lord Young, put it, “fallen between the cracks between conventional leaseholders and those who rent”?

In the course of writing this blog, the government unexpectedly announced a snap general election. As a consequence, the bill was rushed through a two-day ‘wash-up’ before parliament dissolved for the start of the election campaign and given Royal Assent on 24 May 2024. The Renters (Reform) Bill (which, amongst other benefits, would have taken shared owners out of assured tenancy) did not make it through ‘wash-up’.

So, where does the new Leasehold and Freehold Reform Act 2024 leave shared owners? Will they be relieved they postponed key decisions in anticipation of meaningful reform? Or does the act constitute a missed opportunity? It is a topic we will explore in greater detail in a briefing next week.