Low cost home ownership schemes

This content applies to England only.

Over the last decade, dramatically rising house prices have made home ownership unaffordable to the majority of potential first-time buyers in most parts of England.

In response to this affordability crisis, the Government has introduced several low-cost home ownership schemes to allow more people to get on the property ladder.

What are low-cost home ownership schemes?

Low-cost home ownership (LCHO) schemes are government-backed schemes offering help to people who cannot afford to buy on the open market to purchase their own home. Alongside social rented housing, LCHO is another way of providing affordable housing.

Priority is given to: 

• existing council tenants 
• existing housing association tenants 
• people on the housing register, waiting for a council or housing association home to rent.

But other groups in housing need are also eligible to apply, including: 

• key workers (eg teachers, police officers and nurses)
• first-time buyers who can't afford to buy a property.

What types of low-cost home ownership are available?

There are three main types of LCHO – discount schemes, shared ownership and shared equity:

• Discount schemes: these are offered by social landlords (local authorities and housing associations) to their tenants, offering them the chance to buy their homes at a discount. The two main discount schemes are the Right to Buy (applies to council tenants) and the Right to Acquire (applies to housing association tenants). 
• Shared ownership: with shared ownership, a purchaser part-owns and part-rents their home from the housing provider – usually a housing association. The shared owner becomes the leaseholder to the part of the property they own, with the housing association retaining the freehold. The buyer can buy additional shares over time (known as 'staircasing'). Two shared ownership models have been operating since 2006 - Social HomeBuy (which enables social tenants to buy a share in the property they currently live in) and New Build HomeBuy (which enables people to buy a share in a newly built property). 
• Shared equity: shared equity schemes allow people to buy a property on the open market with the help of an equity loan, supplementing a traditional mortgage borrowed from a private lender. This scheme is known as Open Market HomeBuy.

Shelter's view

Shelter supports low-cost home ownership as an alternative form of affordable housing alongside social rented housing, and we welcome the Government's commitment to deliver at least 25,000 more shared ownership and shared equity homes per year over the 2008-11 period.[1]

However, we believe the most acute need is for an increase in the supply of social rented units to tackle the current homelessness crisis, and we are concerned that resources for developing the social housing sector are not diverted away to LCHO schemes.

Shelter is also anxious to ensure that the LCHO programme concentrates on building new homes rather than subsidising the purchase of existing homes on the open market. The root cause of the current affordability crisis is an under-supply of property for sale, causing spiralling prices for existing homes. Subsidising the purchase of existing properties will do little to address this problem and in some regions or localities may actually exacerbate it.

Shelter is keen to ensure that the money generated from the Social Homebuy scheme is used to increase supply of social rented housing. To the extent this is achieved, we believe Social Homebuy should now replace the Right to Buy and the Right to Acquire, which have decimated the supply of social housing stock. We also believe there is a need to ensure that Open Market Homebuy benefits those in real housing need, rather than simply providing a subsidy to buy bigger and better homes.

Lastly, although evidence is limited, what is available suggests that households who have taken up a LCHO product may have a repossession rate up to three times higher than the general population. Shelter is anxious that advice on suitability and affordability of LCHO schemes is improved to prevent households taking on financial commitments that they will be unable to sustain in the long run.

[1] Homes for the Future: More Affordable, More Sustainable, CLG 2007