Front: (L to R) Marilyn DiCara, Moat; Louisa Sedgwick, Leeds Building Society; Paul Broadhead, Building Societies Association
Back: (L to R) Mark Porter, TMP Sherwins; Pacian Andrews, Homes and Communities Agency; Jamie Ratcliff, Greater London Authority; Peter Williams, Imla; and Stephen Smith, Legal & General
Experts say shared ownership could alleviate the housing crisis but the sector needs a makeover in both image and communication
The Government has put shared ownership front and centre of its plan to get more people on the housing ladder. It wants to build thousands more shared-owner homes and last month in its Autumn Statement set out ambitious plans for 135,000 new properties by 2021.
Mortgage Strategy, in association with Leeds Building Society, invited some of the most influential figures in the shared-ownership sector to a venue in central London last month ahead of the Autumn Statement. Seated around a table, eight representatives of lenders, housing associations, brokers and the Government discussed the generally negative perception of shared ownership and ideas for boosting its appeal.
Some suggested the sector should be repackaged for the modern age as housing tenure continues to evolve significantly. Others said a makeover was long overdue and responsibility should now lie with one organisation.
The Government is seeking private investment in the sector and wants to greatly boost supply. With renting on the rise and owner-occupation on the slide, shared ownership is viewed by some as a happy medium.
The following questions were put to the invited panel:
Is there a negative perception of shared ownership?
Sedgwick: We did a study at the end of last year for first-time buyers involved in any part of the process. The majority had saved and saved to get on the housing ladder but only 10 per cent had even thought about shared ownership, which is phenomenal.
Broadhead: Given that one of the biggest barriers to first-time buyers is the deposit, this should be right up their street. Why haven’t they thought of it? Have they not heard of it? Or do they think it is for key workers or special cases, so they self-select against it?
Smith: There is an element of that. We did a survey with Shelter a number of years ago about ordinary properties and shared-ownership properties. It made for depressing reading as, in most parts of the country, people on average incomes could not afford an average house. They couldn’t even afford a modest share of shared ownership.
It was purporting intermediate tenure as being probably one of the answers to the housing crisis. One of the issues raised was the lack of knowledge of shared ownership. And it is bedevilled by having so many different schemes. Help to Buy is shared ownership as well as various new-build schemes and those available through housing associations. Renaming the sector and doing something to make it cohesive would be a big help. I was pleased to see both Zoopla and Rightmove recently allowed you to search for shared-ownership properties. So at the places where people look for properties you can now find it, whereas three or four years ago they would not have been marketed in that way. That’s a help.
Williams: That is the frustration. Shared ownership effectively came into being in 1980 and it is still only 1 per cent of housing stock today. It has had a remarkably low penetration given the housing circumstances we are in. The frustration, not least in the private sector, is that Zoopla and Rightmove are willing to facilitate this growth but there remain tensions with associations. There are all sorts of marketing provisions and there is concern about creating demand they cannot meet, which I understand. The way shared ownership is accessed, which is through a special channel in housing associations, is very self-selective. They don’t connect and it is frustrating that this discussion has gone on for so long with so little progress in opening this channel up and no positive growth strategy. There is haziness about how to grow the market.
Broadhead: Is it down to not having an open retail market?
Williams: It is a demand-and-supply issue. The demand side doesn’t recognise intermediate ownership and it is not obvious how you access it. When I talk to children of friends, they have never heard of it. These are people living in London under extreme housing pressure but it just doesn’t fit on their radar. There is demand weakness but also supply weakness because associations just do not have the capacity. We run the risk of promoting something with no supply.
Ratcliff: The supply side has to come first as we are already seeing about 10 times more demand than there is supply. We have toyed with the idea of a big mayoral advertising campaign but it would just create lots of disappointed people. You have to get supply first. It is rationed by lack of information. Although you could do something to make that simpler, until you have supply it would not work because their flexibility is limited.
Andrews: Lender systems always come up as a key reason why there are not more lenders engaged in shared ownership. It is also about investing in their systems so, until the volume is there, they are not prepared to do that.
Why aren’t more lenders active in this sector?
Williams: We have a constant case of chicken-and-egg. If you are going to do shared ownership as a lender, you have to invest in it. You can’t be an amateur in this market as it is so easy to trip up.
Broadhead: We often see regulators blaming European regulation; we have seen that in the self-build market. Another thing regulators point to is that, although losses are low, arrears levels are higher in shared ownership. If you are a small building society moving into this space, they want to know if you have the expertise and if you know how different it is from vanilla lending.
Sedgwick: That is perception. Our arrears profiles for shared ownership and mainstream mortgages show only a tiny difference. Maybe there is something we can do about communicating it.
DiCara: We capitalise rent arrears on occasion but we don’t like doing it as we would much rather have a dialogue with the lender and work through each individual case. We manage to do it with some but not all. We would much rather do a voluntary resale to retain its market value instead of auction at a depressed value.
Porter: Supply and demand is the key issue alongside affordability. In today’s market, the introduction of the MMR has had a massive effect on the housing association calculator. We are sifting through many more people before we get to the actual mortgage applications. We still have big differences between affordability and lender affordability. We are trying to attune affordability so it is more in line with lenders’.
DiCara: There is that confusion at an early part of the customer journey. We could smooth it out because applicants register with an HF agent with a broad eligibility test and most people pass. And then they look for property and it feels like they are going to get a home. But there are some things that are different and it is not the message they got originally. They want to know why and it is hard to explain planning conditions and other agreements. We are trying to be commercial and slick with information but it is difficult.
Sedgwick: Is there a difference in perception between north and south? There is clearly a demand in the south so perhaps people are more accepting of this tenure. There is a longer history of it there; it has been concentrated in London and the South-east, where it has a higher profile. In the north it has been less needed. Sixty per cent of our shared-ownership mortgages are in London and the South-east.
DiCara: There are some definite hotspots in the north, such as Manchester.
Williams: I suspect there is a chain effect, so when more people use it in an area then more people learn about it and it starts to mushroom. When you have a visible association that is promoting itself, it can be popular. One of the problems is the fragmentation about who owns the problem of shared-ownership perception. We have the housing associations, lenders, the National Housing Federation, trade bodies, the Prudential Regulation Authority, the Department for Communities and Local Government, the Homes & Communities Association – and by then you have given up as a consumer.
Porter: You have standard leases but you have variations in different areas about who can use what. Take London: the GLA sets income levels to qualify for shared ownership but individual boroughs have their own income levels. It doesn’t help anybody when a benchmark has already been set.
Broadhead: A model lease agreement is helpful but many don’t get to that stage because of all the obstacles.
Ratcliff: Shared ownership is mostly delivered by housing associations, which are not universally loved by the Government. There is a risk that shared ownership is affected by the reputation of housing associations. They must address those negative perceptions but also need other investment. We are keen to get private-sector investment from companies like L&G. We are talking to them in order for it to grow much bigger than if it was offered only by housing associations.
Porter: It is difficult to get private companies that offer shared ownership accepted through lenders. It doesn’t fit their criteria.
Ratcliff: There are a number of pieces of legislation that do not help private investment, from leasing agreements to stamp duty. There are some areas where the Government can do more to open it up.
Do people go into shared ownership as a stepping stone and expect to ladder into buying the property? Or do some believe it is renting with a secured tenure?
Andrews: Most people staircase upwards quickly.
Sedgwick: Only 3 per cent of our borrowers staircase to buy the property.
DiCara: Our data shows most shared owners staircase by years nine, 10 or 11. But of those who have not staircased by years 12 or 13, very few will do so. For those who don’t, the affordability worsens over time. We have strengthened information up front about it. We want customers to think a lot more about staircasing as soon as they buy.
Porter: We have discussions about staircasing up front but in London they are mostly people who just want to get on the ladder. They treat it as, say, a five-year term and then look to move out and get something different. Some associations have programmes about staircasing and how to attack it but others do nothing. We had a campaign with associations that had very high rents, so encouraging people to staircase was almost cost-neutral because of low mortgage rates. It is about awareness more than anything and perhaps we need more reviews.
Smith: Not everyone should be viewed on the same conveyer belt. One of the problems in the UK is that everyone is meant to aspire to 100 per cent homeownership. But that is not going to happen. There should be no stigma in owning 30 per cent, 40 per cent or 50 per cent of a shared-ownership property and staying with it for the longer term. Intermediate tenure should not always be viewed as a stepping stone but as a solution, just as much as private renting and owner-occupation.
DiCara: We need to promote the idea that the intermediate market is OK; otherwise, people feel they have failed if they do not staircase and dissatisfaction kicks in. We know what incomes and house-price inflations are doing and frustration kicks in, fuelling dissatisfaction. Shared owners then feel they have been missold a product.
Broadhead: It is interesting because the alternative is private renting. What is the relative satisfaction? Would they be happier owning zero per cent of a property in private renting without any expectation?
Williams: That is not the comparison people are making. They are comparing it to what they thought they would get.
Smith: That is due to the perception that it is a stepping stone to something else. If you are a 40 per cent shared owner then you are a 60 per cent renter. Most housing associations are a darned sight nicer than most private landlords and security is far greater. There are huge benefits to renting in intermediate tenure.
Ratcliff: There are associations that manage their holding badly. They do not respond to enquiries for remortgaging, or changing names or relationship status. The other poor area is service charges.
Williams: I wonder if it is right to have 100 per cent of repair and maintenance obligations falling on the shared owner. You own only 25 per cent of the property but you are responsible for 100 per cent of it. The affordability becomes more difficult over time so your own circumstances are worsening. There could be some flexibility around this and some innovation.
DiCara: We have debated repair and maintenance over the past year. Shared owners would welcome a package to assist with the costs but ultimately someone has to pay for it. It is going around in circles.
Williams: It doesn’t need to because you have an asset with significant inflation. If we did a relative cost-benefit analysis of who benefits from shared ownership, it would fall mostly on the producer. I think that balance could be re-weighted.
Ratcliff: I push back on that strongly. The way to get private-sector investment is because of that balance. It is attractive because you get long-term leases with low costs. If you got rid of any of those, it would stop private-sector investment, which is what we need to get to scale. Perhaps once we have got to scale, there are some things we could do.
Will shared ownership be more attractive to the young adults of today?
Broadhead: I think about how we buy cars, for example, and financing is often through partial ownership. It is virtually normal in every other financial transaction but not for the roof over your head. If we described it as a type of tenure, it would become a more secure tenure than private renting, which could help. It would then be more directly comparable to renting.
Smith: My kids tell me about the ‘sharing society’. In my living room there are racks of CDs but kids today have Apple Music without owning CDs. It is a generational difference, like DVDs versus Netflix. You could argue that private renting and social renting versus homeownership is following the same dynamic.
A recent PwC report showed that, by 2025, there will be more people in private renting than buying with a mortgage. That is the tip-over point: by 2025, under a quarter of 20- and 30-year-olds buying a home. The world is changing markedly. Those of us in the mortgage industry are facing decline in market share. Shared ownership needs a makeover. We need to Apple Music-ify it and make people think it is a smart thing to do. It’s a side bet on owner-occupation with secure tenure and is not in the Wild West of private renting. It is capable of being re-packaged.
Williams: I agree. It has enormous potential.