Real Estate Blog: Changes to Shared Ownership Leases
Everyone in the social housing sector will be familiar with the changes to the shared ownership leases, introduced by the Affordable Homes Programme 2021 – 2026.
These changes resulted in:
- The minimum initial share being reduced from 25% to 10%.
- New shared owners being able to buy additional shares in their home in 1% increments for the first 15 years, instead of the previous minimum of 10%.
- RPs having to contribute to the costs of essential repairs and maintenance during the first 10 years.
- The lease length being increased to 990 years.
- The marketing period for resales being shortened from 8 weeks to 4 weeks.
Subsequent to the above, from 12 October 2023 changes to rent reviews have now also been introduced as follows:
- The rent increase formula has been changed from RPI plus 0.5% to CPI plus 1%.
- The minimum rent increase has been reduced from 0.5% to 0%.
- Housing Associations have discretion to increase rents by less than CPI plus 1%.
There are exemptions to the application of the above e.g. where funding for units has been agreed prior to 12 October 2023.
The intention behind the changes is to make shared ownership rents more affordable and consistent with other forms of social housing. However, from an RP perspective, it means that they may end up with a portfolio that includes both RPI – based and CPI – based leases.
RP’s initial focus should be on keeping clear records as to why any leases in its portfolio contain RPI – based reviews. This will be important from a securitisation and asset management perspective.
Long term, it is clear that CPI will become the preferred index for shared ownership lease rent reviews and RPs will need to make a choice between running a two – tier portfolio or switching older leases onto a CPI – based review structure. Either of these options will of course have cost implications for RPs.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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