Rent Reforms for Shared Ownership

Introduction

The UK’s housing landscape has been evolving rapidly, with a keen focus on ensuring affordable housing options for all. The Department for Levelling Up, Housing, and Communities (DLUHC) has recently announced significant changes to the rules governing shared ownership rents. These changes aim to make shared ownership more affordable and address concerns about its financial sustainability for lower-income buyers. In this blog, we’ll explore the key elements of these reforms and what they mean for both current and future shared ownership tenants.

The Current System

Shared ownership has long been considered a valuable route to homeownership, allowing individuals to purchase a share of a property and pay rent on the remainder. However, a concern raised with the system was the way rents were calculated. Landlords could increase rents once a year based on the Retail Prices Index (RPI) plus 0.5%. This formula, using the RPI figure from the previous September, led to substantial rent hikes.
In 2022, for instance, the RPI was 12.6%, resulting in a 13.1% increase in rents for shared owners in the following April.

The Reforms: Moving to CPI and More

In response to these concerns, the DLUHC has decided to move away from the RPI and adopt the Consumer Prices Index (CPI) plus 1% as the new rent calculation method. This adjustment aligns shared ownership rents with the limits applied to annual rent increases in other forms of social housing.

It’s important to note that it applies to new leases only. Existing shared ownership tenants will not benefit from the immediate reduction in rent increases. And as a “transitional measure” some properties will be exempt as is necessary to allow providers to deliver new homes under the government’s Affordable Homes Programme without disruption “where the terms of their delivery have been officially finalised.”

Additionally, shared ownership homes delivered through Section 106 agreements will follow the new rent review schedule for planning permissions granted on or after October 12. However, local councils have the authority to exempt schemes approved after this date if substantial work has already been undertaken to agree on planning obligations, ensuring the continued supply of affordable homes.

Moreover, the reforms reduce the floor for shared ownership rent increases from 0.5% to 0%, meaning rents cannot increase if the CPI falls to minus 1% or lower.

The Broader Impact

These reforms are a step towards making shared ownership a more affordable and sustainable housing option. Housing Minister Rachel Maclean has emphasised the importance of protecting shared owners from higher costs and providing greater security of tenure, placing them on an equal footing with other leaseholders.
Furthermore, Homes England is amending its model shared ownership lease to give registered providers of social housing the discretion to increase rents by less than CPI plus 1%.
In the backdrop of the UK’s rising inflation rates, most traditional housing associations have voluntarily capped rent increases at 7%, in line with the government’s limits on social rent rises.

Affordability Challenges and Future Prospects

Shared ownership has faced scrutiny in recent times due to its “upward-only” cost structure and the requirement for buyers to purchase as much as they can afford at the outset. New research has warned that this model may become financially unsustainable for lower-income buyers over time. The reforms address some of these concerns, but continued efforts are needed to ensure shared ownership remains a genuinely affordable and accessible housing option for all.