On 8 December 2021, the Competition and Markets Authority (the CMA) published its revised consumer law advice for care home providers (Guidance).
The Government first announced plans for a shared ownership right to buy in October 2019. At the time the sector raised concerns about the impact the plans would have on housing associations ability to borrow. An election and a pandemic later the Government announced, during the CIH Housing Festival last week, the return of the right to shared ownership as part of its Affordable Homes Programme (AHP). The majority of homes funded by the new AHP will have the right to shared ownership which will allow purchases to start at a reduced 10%, staircasing in 1% shares, and controversially the landlord retaining the obligation to repair for the first 10 years of the lease.
With fears being expressed about why the Government has chosen this moment to “chuck a massive rock into the pond” (Matthew Bailes, CEO Paradigm Housing Group writing in Inside Housing on 16 September) there are fears that the right will result in fewer homes for more money. The NHF is equally worried about shared ownership viability
We set out our team’s initial thoughts about the plan below, which expands on the comments Jonathan Cox made in his briefing last year.
From a bank/investor funding perspective, the proposals under the ‘right to shared ownership’ could have the following impacts:
- Funders could be concerned that the 10 year maintenance and repair requirements will increase the potential risks (impact on income) for housing associations and consequentially the risks of lending to housing associations;
- It will weaken the financial position of housing associations due to the higher maintenance costs that housing associations will have to incur;
- There is a concern that if income streams from social housing (normally certain and dependable from rental income) are impacted/could be impacted, then this could impact on the ability to borrow at competitive rates. We have already seen some halt schemes in preparation and due to uncertainty around how borrowings could be affected;
- As banks and investors currently only allow a small proportion of shared ownership properties that the housing association owns to be used as security for loans (around 10-15%) it is perceived as ‘higher risk’, having a requirement such as the right to shared ownership (from a level of 10% by the tenant) will limit the ability of the housing association to use such properties as security for future loans;
- Due to the uncertainties of the proposals and the limit on using such properties as security for further loans and therefore a potential impact on the ability to raise long-term finance, there could be a slow-down in the development of new homes even though there is still a housing shortage.
Of course, all of the above assumes a certain level of interest in the right to shared ownership and take up by tenants (who are able to secure mortgage for their ‘stake’). Many commentators are suggesting that take-up by social housing tenants will be low which will, of course, negate some of the impacts above.
In terms of the management of shared ownership properties, the key challenge is the landlord being required to undertake the repairs for the first 10 years. This will be popular with shared owners of course especially if they only own 10% but is it right that a leaseholder who owns e.g. 75% of their home should not bear some percentage of the repairing obligations? To what extent this will be reflected in higher rental values remains to be seen. Allowing people to buy additional shares in their home in 1% instalments will mean housing associations need to anticipate the increased levels of administration likely to follow.
The repairing obligations will not be the usual implied s11 Landlord and Tenant implied terms – s11 does apply to a fixed term assured tenancy of more than 7 years but shared ownership leases are expressly excluded (s11(1A)(b)(i)). Either a revised template lease will have to have the repairing obligations written in or amendment to primary legislation to amend s11 will be required. This repairs shift will of course only apply to new homes grant funded under the AHP not to all existing shared ownership properties or sales. Each property will need to have the right to shared ownership clearly identified on systems for housing management and maintenance teams to be able to easily spot.
New build homes of course usually have an NHBC guarantee for the first 10 years so there may be some sense in the 10 year time period chosen. The NHBC guarantee does not however cover repairs that arise from general wear and tear or maintenance issues but is mainly focused on defects. It will therefore limit what works can be claimed or carried out under it.
As always, the devil will be in the detail!
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