Since the end of the government’s Help to Buy scheme, Shared Ownership has become a much-talked-about option for those struggling to step onto the UK property ladder. Marketed by MPs as a more affordable route to homeownership, it allows buyers to purchase a percentage of a property while paying rent on the remaining share, with the option to increase ownership over time. For many, this seemed like the ideal compromise between renting and buying, offering the best of both worlds.
However, the reality of Shared Ownership has proven to be more complex and often less favourable than initially promised. Earlier this year, a group of MPs highlighted significant failings within the scheme, citing escalating costs, difficulties in selling properties, and challenges in “staircasing” to full ownership. These issues have raised doubts amongst buyers and investors about whether Shared Ownership is truly delivering on its promises.
This summer’s change in government has introduced new housing priorities, with Starmer’s Labour government focusing on promoting commonhold over traditional leasehold arrangements for flat ownership. This shift could signal a significant overhaul in property ownership and management, potentially affecting the future of Shared Ownership as the government moves toward more straightforward ownership models.
As the housing market faces pressures from rising debt costs, stricter safety regulations, and fallout from the end of Help to Buy, policymakers and homebuyers alike need to reassess whether Shared Ownership remains a viable pathway to homeownership. Read on to explore the benefits and drawbacks of Shared Ownership, compare it with emerging models such as co-living blocks, and assess its future in the current economic climate.
The Promise and Reality of Shared Ownership
Despite hitting headlines heavily in 2023 and 2024, Shared Ownership is not a new concept. Introduced under the 1980 Housing Act, Shared Ownership aimed to offer an affordable route to homeownership for those excluded from the property market by affordability criteria or lack of deposit. Under this scheme, buyers can purchase a share of a property—typically between 25% and 75%—and pay a subsidised rent on the remaining portion.
Buyers can increase their share of ownership in a property over time via a process known as “staircasing”. Over time this process allows them to buy additional shares of their property, with the potential to eventually own the property outright.
This model has become particularly appealing to first-time buyers over the post-lockdown years due to its lower deposit requirements and potential for gradual investment. Since its inception, Shared Ownership has grown to cover approximately a quarter of a million homes in the UK, providing a vital entry point to homeownership. However, the reality is often more complex.
While in theory staircasing allows buyers to increase their ownership share over time, in practice, it can be financially challenging due to the rising property values, additional costs, and sometimes prohibitive mortgage terms. This can leave buyers feeling stuck in a partial ownership situation, unable to afford the next step towards full ownership.
Furthermore, the resale process for Shared Ownership properties can be difficult. Unlike fully owned homes, SO properties often come with restrictions that can complicate the selling process, potentially limiting the pool of prospective buyers and prolonging the time it takes to sell. Additionally, the ongoing payment of rent on the unsold share, combined with service charges and maintenance fees, can make SO less affordable than it initially appears, especially as these costs can increase over time.
The Failures of Modern Shared Ownership
These complications have been highlighted in a report by the Levelling Up, Housing and Communities (LUHC) Committee, which points to rising rents, uncapped service charges, and disproportionate repair costs as major issues making the scheme untenable for many buyers.
One of the central issues identified in the LUHC report is the complexity of Shared Ownership leases, which often leaves buyers unaware of the full extent of their financial commitments. This complexity, coupled with the lack of accessible, independent advice, exacerbates the challenges faced by buyers, particularly when unexpected costs arise.
Another critical failure of the Shared Ownership model is the disproportionate burden of repair and maintenance costs. Unlike traditional homeowners, shared owners often find themselves responsible for significant upkeep expenses, even when they only own a fraction of the property. These costs are frequently uncapped and disproportionate to the share owned, making the financial reality of Shared Ownership less affordable than it initially appears.
This is not the first time that the government has addressed issues with Shared Ownership. Improvements were made to Shared Ownership leases in 2021 to address cost transparency and cap certain fees. However, these reforms do not apply to properties delivered under the previous Affordable Homes Programme (2016-2023). This has led to concerns about the emergence of a two-tier market, where older Shared Ownership properties become increasingly difficult to sell on due to less favourable terms.
Economic and Regulatory Challenges
The decreased interest in Shared Ownership is not just coming from buyers, but from investors and developers, who are facing increasing economic and regulatory pressures that impact the sustainability of Shared Ownership projects.
Rising debt costs have become a significant hurdle for Shared Ownership schemes. As interest rates climb, the cost of borrowing for housing associations and developers also increases. This escalation in debt servicing costs can lead to higher prices for Shared Ownership properties and reduced subsidies for rents, making the scheme less attractive to potential buyers.
For buyers, the higher cost of financing can reduce the affordability of their monthly payments and erode the financial benefits that Shared Ownership was initially designed to provide. This economic pressure is particularly acute for first-time buyers who rely heavily on the affordability of SO to enter the property market.
New safety regulations are also creating challenges for Shared Ownership schemes, leading to delays in obtaining planning permissions and increasing costs for compliance. For Shared Ownership schemes these delays can stall the availability of new properties and increase costs for buyers.
Changing Energy Performance Certificate (EPC) targets are another significant factor influencing the housing market. New EPC requirements mandate higher energy efficiency standards for buildings, which impose substantial costs on developers. For larger housing blocks such as the new-build blocks that Shared Ownership schemes often favour these costs can be considerable, as significant retrofitting or new construction measures may be needed to meet the updated standards.
These increased costs are often passed down to buyers in the form of higher property prices or rents. In Shared Ownership schemes, where affordability is already a concern, the additional financial burden from meeting EPC targets can further strain buyers’ budgets and impact the scheme’s attractiveness.
The Future of Shared Ownership Schemes
The future of Shared Ownership schemes is uncertain amid evolving political, economic and market dynamics. Rising rents, mortgages, and interest rates have posed significant challenges over the past years. As borrowing becomes more expensive, the affordability of SO properties may be compromised, potentially deterring prospective buyers.
Additionally, the financial strain on housing associations, which play a pivotal role in maintaining and expanding SO schemes, could increase as they face higher debt servicing costs. This could limit their ability to offer competitive prices and subsidised rents, challenging the long-term viability of the SO model.
However, both renting and borrowing could become gradually more affordable after a tumultuous few years. Mortgage providers are already cutting rates in response to the Bank of England’s first interest rate cut this August, and forecasters believe that UK rents have reached their peak growth this year. Will interest in Shared Ownership pick up as a result of more affordable terms, or will potential buyers opt for alternative models of ownership?
Shared Ownership vs. Co-Living Blocks
Once such alternative is co-living blocks, which offer communal living arrangements with shared facilities, appealing mainly to younger people, those looking for a social living space, and those preferring flexibility. This model provides lower upfront costs and greater mobility, catering to those who prioritise communal living over long-term property ownership.
Investment trends are shifting towards co-living spaces, particularly following the end of the Help to Buy scheme. City-based investors are drawn to co-living for its flexibility and appeal to a diverse market. There are also benefits to co-living blocks when it comes to economies of scale, from building and development to adhering to the latest safety regulations and EPC targets.
With the rise of investment in co-living blocks, Shared Ownership may struggle to compete, particularly if it fails to address its own challenges. The Shared Ownership market will need to adapt and innovate to maintain its relevance and appeal in an increasingly diverse housing market.
The Role of Government in Shared Ownership
March’s LUHC report called for urgent government action to reform the Shared Ownership scheme. The report recommended extending the 2021 lease improvements to all existing Shared Ownership properties, avoiding a two-tier system for resales. The report also recommended ensuring that repair costs are proportionate to ownership share, making it more sustainable for buyers to live in Shared Ownership properties long-term.
Government support has historically been a critical factor in the success of Shared Ownership schemes. With the phasing out of Help to Buy in 2023, the future of Shared Ownership depends on alternative forms of government support being introduced. With July’s change in government, potential buyers are tentatively waiting for an official line on Shared Ownership and other schemes. Without continued or enhanced government backing, Shared Ownership schemes may struggle to sustain their role as a viable path to homeownership.
Shared Ownership vs. Commonhold
The Labour housing policy focuses on increasing social housing, decreasing mortgage deposits, and building new homes. While Shared Ownership hasn’t yet been mentioned specifically, critics fear that it could be deprioritised in favour of replacing leasehold arrangements with commonhold contacts. As many Shared Ownership properties are flats, this could create additional regulatory problems.
Commonhold, established by the Commonhold and Leasehold Reform Act 2002, allows each flat or unit in a building to be owned freehold, with all owners being members of a Commonhold Association responsible for managing the property collectively. This system aims to replace traditional leasehold arrangements with a model that offers more democratic control over property management.
While Commonhold and Shared Ownership address different needs within the housing market, Shared Ownership relies on lease agreements that do not fit into the current legal framework of Commonhold. The integration of the two systems will be challenging, but proposed changes by the Law Commission, such as giving shared owners the right to challenge unreasonable charges, could allow both models to coexist.
Conclusion
In summary, Shared Ownership schemes present a mixed picture. While they continue to offer a pathway to homeownership, it is a pathway beset with hurdles such as rising debt costs, regulatory complexities, and market dynamics. With outgoing MPs criticising the scheme for failing potential homeowners and the incoming government deprioritising it in favour of commonhold, it clearly needs to adapt to the market’s current needs.
Policymakers and industry stakeholders need to re-evaluate Shared Ownership in light of current challenges and emerging needs. Shared Ownership contacts and leases need to be made more straightforward and equitable, and potential buyers need to be better educated as to the financial commitments they’re making. Repair and maintenance costs need to be reevaluated, especially in light of changing safety and EPC requirements, so that shared owners are paying a proportionate amount to their share in the property.
When it comes to innovative solutions for affordable, equitable housing, the answers are already out there: a balanced approach to Shared Ownership that incorporates both traditional housing and innovative models such as co-living will be essential in continuing to address the diverse requirements of today’s housing market. Policymakers can also look to proposed Commonhold schemes for a template that makes part-ownership of a building more democratic than traditional leasehold allows for.
Although Shared Ownership has the potential to offer benefits for first time buyers and developers alike, its success will hinge on its reform. Proactive engagement with issues such as economic limitations, regulatory challenges, and public understanding will help ensure more housing options, including Shared Ownership, remain effective in meeting the evolving demands of homebuyers.
