Shared ownership housing rights

Shared ownership is a government backed scheme to encourage home ownership. It is sometimes called part buy, part rent, though this description has been described as misleading by the Advertising Standards Authority.[1]

Shared ownership can offer more security than private renting, but shared owners often do not fully understand how the scheme works. Shared owners are assured tenants with a long lease, not homeowners in the traditional sense.

Housing rights of shared owners

Shared owners have a fixed-term assured tenancy with a social landlord, called a Private Registered Provider of Social Housing. Because the initial fixed term is at least 99 years, it is classed as a long lease.

The shared owner pays a premium for the lease as a fixed amount of the property value (10-75 percent) to the landlord. They usually pay for this with a mortgage. They can increase the amount they pay to the landlord during the term of the lease up to 100 percent. This is called staircasing.

The shared owner pays rent to the landlord based on the remaining value of the lease (the part not paid for by the premium). Rent is normally three percent of the landlord’s share of the property value.

The shared owner is responsible for repairs to the property. The lease usually requires them to pay service charges to cover the costs of maintenance and improvements to the property. Shared owners of flats in a block are entitled to claim the right to manage it, regardless of whether they have acquired 100 percent of the value of their property.[2]

For information on dealing with rent, mortgage, and service charge arrears, see Shared ownership arrears and possession proceedings.

Fundamental clauses

Homes England produces model leases for the landlords to use, that contain all the fundamental clauses. Fundamental clauses are the terms that must be included in the lease for the scheme to qualify for government funding.

The fundamental clauses include:

• the right of a shared owner to buy the property in increments

• protection for the mortgage lender's security

• restrictions on subletting

• rules for rent reviews

All the fundamental clauses are available on Gov.uk Capital Funding Guide.

Variation of leases

Shared ownership leases cannot be varied without the consent of both the purchaser and the registered social landlord, unless they are varied by an order made by the First-tier Tribunal (Property Chamber) [3] or the County Court.

Shared ownership properties are usually a combination of assured tenancy and leasehold owner-occupation. The assured tenancy has no rent controls applicable, apart from a few limited exceptions.[4]

The landlord sets a rent for the property, which is subject to annual increases. The rent can be increased once a year by a maximum of Retail Price Index (RPI) plus 0.5%. Rents on new shared ownership leases granted from 12 October 2023 can be increased by Consumer Price Index (CPI) plus 1%. [5]

Applicants are also granted a lease of the property of at least 99 years. The shared owner does not acquire any beneficial interest arising from the lease. They can assign it to a new owner or back to the housing association landlord to recoup their payment.

The lease might require the shared owner to pay ground rent. No ground rent can be charged for a residential lease granted after 30 June 2022.[6]

For shared ownership leases, the restriction only applies to the ground rent payable on the tenant's share of the property.[7] The landlord can still require the tenant to pay rent for the assured tenancy.

The lease

The leaseholder is responsible for all repairs and redecoration inside and out. The rent includes a service charge covering the costs of insuring the building, rent collection and a share of the cost of maintaining any other common areas.

If the lease is for a flat, the landlord is responsible for all external maintenance and repairs, including exterior paintwork. The leaseholder would pay for this through the service charge, which includes their share of the cost of maintaining all common parts, and they may be liable for extra charges to pay for major repairs.

The leaseholder is responsible for all internal redecoration, and is often responsible for internal repairs, though the lease sets out all the leaseholder's obligations.

The mortgage

Most people who pay a premium for a leasehold interest need to take out a mortgage. The mortgage lender and the terms of the mortgage must first be approved in writing by the landlord. Most mainstream mortgage lenders offer a shared ownership mortgage which is compliant with the Homes England and Welsh Government schemes.

The individual mortgage product could vary according to what the lender offers. For example, it could be fixed rate or variable. The mortgage is likely to be a capital repayment mortgage rather than interest only.

Shared owners could claim benefits they are entitled to towards the cost of their accommodation

Rent

Shared owners can claim housing benefit or the housing costs element of universal credit for help towards their rent payments, provided they meet the usual eligibility criteria.

Service Charges

Shared owners can claim housing benefit or the housing costs element of universal credit for help towards eligible service charges.

Service charges for shared ownership properties are assessed according to the rules for renters and not the rules for long leaseholders or owner occupiers. There is no qualifying period and entitlement does not stop if the claimant works.

Mortgage payments

A shared owner might qualify for Support for Mortgage Interest (SMI). SMI is a loan from the government and claimants should be referred for independent financial advice about whether it is suitable for them.

Applicants who take out a mortgage whilst receiving certain benefits might not qualify for SMI. Applicants in receipt of benefits could find it difficult to get a mortgage

Shared ownership schemes allow the shared owner to increase the amount of the premium they pay, up to 100 percent of the property value. Once the shared owner has paid 100 percent, they own the lease and any beneficial interest arising from it.

The minimum initial share of the premium is set at 10 percent, though the scheme might require the shared owner to purchase a larger share. Staircasing might not be an option during the first year of the term of the lease. There may also be restrictions on staircasing in designated protected areas[8] and in certain rural areas.

The cost of staircasing depends on the value of the property when the transaction takes place. The value is determined by a chartered surveyor. Shared owners are usually responsible for the cost of the valuation, and the cost of their own and the landlord's solicitors. Shared owners who staircase to 100 percent must pay stamp duty.

The landlord does not usually allow the shared owner to purchase a larger share if there are rent arrears.

Transfer of title

If the property is a house, the freehold is automatically transferred when the leaseholder owns 100 percent of the equity. However, in designated protected areas in England, certain leases must contain a requirement for the leaseholder to sell their property back to the original landlord or its nominee when they want to sell the property.[9]

For flats, the leaseholders can collectively purchase the freehold if they have all staircased to 100 percent.

Downward staircase

It may also be possible to 'downward staircase', or request the registered social landlord to buy back shares, if the occupier has difficulty paying the mortgage. This is usually a last resort.

The landlord can sell the freehold when all the leaseholders of flats in the same scheme have staircased to 100 percent. The sale is likely to be to a management company formed by the leaseholders themselves who would then be responsible for the management of the properties and landlord obligations under the lease.

Leaseholders of flats who have staircased to 100 percent in existing shared ownership schemes have the right to collectively buy the freehold if they can satisfy the required conditions under the legislation.[10] Leaseholders with smaller shares would then have to lease back their properties from the new freeholders.

Subletting the whole of the property is prohibited for shared ownership properties, although the landlord may consider a request to sublet in certain circumstances. These include the:

• reason the shared owner needs to sublet is unavoidable

• subletting is not for speculation or gain

• sub-lessee meets the criteria for shared ownership

• shared owner is subletting the property on a fixed-term agreement

The shared owner also needs the consent of the mortgage company before subletting the whole of the property.

A shared owner who wants to move house can sell the lease at any time. They must inform the landlord in writing that they want to move. They can either sell the lease for the amount they have paid a premium on, or buy the remaining share and then sell the property outright.

The leaseholder benefits from any increase in the value of the property according to the share they own.

The shared owner must give the landlord notice that they want to sell the property. The landlord has either 4, 8, or 12 weeks to find a buyer, depending on the terms of the lease. This is called the nomination period.

During the nomination period, the landlord can sell the share of the property for the current market value, as set by a chartered surveyor.

Remaining term of lease

Mortgage lenders normally require at least 80 years left on a lease before they will grant a mortgage. That means the value of leases with less than 80 years remaining can fall drastically.

The landlord might be willing to grant an extension to the lease to allow the shared owner to sell at a better price. The housing association charges the shared owner to extend their lease.

Moving house

Shared owners who need to move to a more suitable property because of a change in household circumstances may be able to move to another shared ownership property, provided they are still eligible.

If a person with a shared ownership lease dies, the part of the property that is owned passes to the beneficiary of the will. The rented part passes to any successor.

Where these two people are different, the tenant (successor) has the right to occupy and the beneficiary has the equitable interest, which would only be realised when the property is sold.

The beneficiary's position would be similar where there is no successor: the landlord would have vacant possession of the property, but the beneficiary would be more likely to succeed in obtaining an order for sale to realise the equity.

The landlord obtains vacant possession if there is no successor and no one to inherit the equity. The equity will eventually pass to the Crown or the Duchy of Cornwall or Lancaster under the laws of intestacy.[11] The lease might contain a clause stating what happens in this situation.

A shared ownership tenant can make a complaint about their landlord if they have a problem.

Housing Ombudsman

The tenant should start by complaining to their landlord directly, and if needed, they can then escalate the complaint to the Housing Ombudsman.

The Housing Ombudsman can investigate complaints against local authority and housing association landlords. The Ombudsman is independent, impartial and free to use.

The Ombudsman can instruct the housing provider to take steps to put things right or to compensate the tenant.

Find out more about complaints to the Housing Ombudsman on Shelter Legal.

Regulator of Social Housing

Some complaints can be made to the Regulator of Social Housing.

The regulator requires all registered providers of social housing, including local authorities and private social landlords, to have a clear and accessible complaints procedure in place.

The regulator also has enforcement powers if a provider fails to meet a consumer or economic standard.

Find out more about regulation of social housing providers on Shelter Legal.