Reforming shared ownership in the senior living sector

Shared ownership (also known as equity sharing, or co-ownership) allows people with limited funds the opportunity to purchase a share in a leasehold property.  The buyer purchases part of the value of the property (either by taking out a mortgage or using their own savings), and pays below-market rent to a housing provider in respect of the remaining share.  If the buyer is using loan finance, they need a smaller deposit than if they were purchasing the property outright.

The buyer can increase the proportion of the property that they own via a process known as ‘staircasing’, and can usually staircase all the way to 100% ownership.  If that happens, they no longer have to pay any rent, just service charges and ground rent payable on the landlord’s owned share.  In some situations they can also sell back some of their equity in the property to the housing provider, in a process known as "staircasing down", in order to access the cash value.

Yes, the report considered the current model set up by the Government in April 2021, which is called the Older People’s Shared Ownership scheme ("OPSO").  It allows people aged 55 and over in England to buy an initial share in a home of between 10% and 75% of its market value.  Once they own 75% they do not have to pay rent on the remaining 25%.

The report identified the following 3 key problems with the current OPSO scheme:

1. Consumer protection

Respondents highlighted a lack of clarity in consumer law in this scheme.  Specific concerns were raised around the leasehold arrangements within some shared ownership schemes, including problems around steep and unexpected rental and service charge increases, along with expensive repair works.  The inquiry was also told of the heightened risks of homeowners under the OPSO scheme being repossessed because of a failure to pay rent on the share of the property they do not own.

2. More help for staircasing down and resales

While “staircasing down” could prove an attractive way for seniors to release equity from their homes, this can be very problematic for housing providers. The inquiry also heard concerns from shared owners regarding the resale of their properties, including unnecessary and costly delays, combined with a general lack of knowledge from local estate agents about the product — especially its extra attractions including potential access to care and support — which can hinder the resales process.  The report concludes that unless this knowledge gap is addressed, it could represent a potential brake on any market expansion.

3. Reforming the grant regime to protect landlords

The inquiry panel heard that seniors were very attracted by the prosect of not paying any rent when buying a 75 percent stake in the property.  However, it was reported that large housing providers and for-profit providers are put off from entering the seniors shared-ownership market because they rely on the rental income from homeowners but the Government's grant rates do not cover this rent-free situation.  Where a 50 percent shared owner becomes a 75 percent shared owner, for example, the provider loses all rental income from the property, whereas the level of governmental grant makes no provision for this loss of income.  Also, the grant must be returned to Homes England whenever staircasing occurs.

1.Consumer protection

• consult on the legal and regulatory options to strengthen the consumer rights of shared ownership homeowners, especially older people;
• mandate that information on the likely costs of service charges and repairs is given to prospective purchasers before they buy;
• ensure that Homes England produces a best practice guides for provider, which could be based on the GLA’s new Service Charges Charter;
• establish a mandatory consumer code for the older people’s shared ownership sector, which could draw on the principles of the Associated Retirement Community Operators ("ARCO")'s Consumer Code and the Association of Retirement Housing Manager's Code of Practice; and
• take forward the Regulation of Property Agents Working Group's proposals on the regulation of property agents, which cover management of private sector shared ownership schemes.

2. More help for staircasing down and resales

The report recommends that the Government should back a market review to advise housing providers on the actions they should take to support the resale market in shared ownership properties, including buy-back schemes, and that housing providers should help homeowners manage the process of reselling their properties.  It is likely that housing providers would be willing to take these views on board, as there are several reasons why it can be in their interest to do so: firstly, buy-back schemes mean that they can issue a new lease each time there is a new occupier, rather than the lease terms becoming outdated and, secondly, landlords would prefer to refurbish and resell units themselves, in order to maintain the value of each unit and also to keep the whole block in good repair, rather than risk outdated and possibly badly-maintained units reducing the value and/or appeal of the whole development.

It also suggests that “staircasing down” opportunities should be reviewed by providers and funders to determine how shared owners could be offered an equity release option.  There would be scope for reforming the system of Government grants here so that providers do not lose out on grant funding if an occupier chooses to exercise this right.

3. Reforming the grant regime to protect landlords

The report suggests that the Government should enhance the OPSO grant funding regime in order to make the programme more financially viable and attractive to providers.  In particular, grants should enable a 25 percent rental discount under OPSO for all shared owners (not just 75 percent) regardless of how much equity they own.

Yes, it recommended that the planning system could be adjusted to support the senior living sector.  For example, the Department for Levelling Up, Homes and Communities should seek to clearly define older people’s housing and ensure it is adequately included in Local Plans.  This suggestion is topical because the Government is currently consulting on a number of changes to the National Planning Policy Framework, including setting clearer expectations around planning for older peoples’ housing.

The report also suggests that shared ownership could play an important role in supporting diversity in the housing sector, and recommends that housing providers and sector-wide agencies should investigate the range of unmet needs, such as LGBTQ+ in the seniors market.

The report concludes that there is scope for more private investment in the seniors shared ownership market, and to stimulate the creation of new housing models, provided that there is sufficient regulation to protect consumers.  It recommends that:

• sector bodies like ARCO and the Retirement Housing Group, with support from Homes England and DLUHC, should provide clear information, including case studies on existing developments, to encourage investors and providers into the sector;
• the anticipated renters' reform legislation should strengthen the rights of shared owners, as well as other leaseholders, to outlaw poor practices; and
• the Older People’s Housing Taskforce should analyse the ways in which a major expansion of shared ownership for older people can be achieved.

The report provides a balanced and positive analysis of the way ahead for shared ownership schemes in the senior living sector.  The key to unlocking the expansion of this tenure seems to be for Government to adjust the OPSO scheme to strengthen consumer protections for homeowners, alongside making the model more financially viable for real estate developers and investors.