Appearing at a Parliamentary debate this week, Miller told the Levelling Up, Housing and Communities Committee that shared ownership was “a very little understood product but one which has potential to help many, many people who would otherwise be in the private rented sector.”
She added that it was a “mistake to compare shared ownership to outright ownership because I just don’t think outright ownership is a realistic prospect for most people going into shared ownership. The real comparator is being in the private rented sector”.
A niche offering
The panel was asked what support the Government could offer housing providers who were in the shared ownership market.
Miller said the sector needed to grow as it was still niche. She said the Government should support its growth so the experiences of the shared ownership model can be better understood.
When asked if mortgage lenders saw shared ownership as innovative or established, Stanimira Milcheva, professor in real estate finance at University College London, said while there were more providers, it was a small market.
She said shared ownership loans were not riskier because there was a mortgagee protection clause which applied only to this tenure and reduced the credit risk for lenders. This requires a landlord to give lenders 28 days’ notice before forfeiting a lease. However, she said there were other upfront costs which may be necessary to manage the relationship with the housing provider.
Profitability for providers
Clive Betts MP asked the panel if housing providers liked people to stay in shared ownership because it provided a “good revenue stream” from the service charge.
Miller said the company had an incentive to encourage people to staircase out. She said the rent shared on the unowned portion was defined by the lease and there was a maximum charge applied.
Miller said Clarion was receiving “yields of about three per cent on the residual rental stream”, meanwhile the cost of borrowing for housing associations was around six per cent so there was “every incentive on us to encourage who can staircase out to do so”.
Helen Spencer, executive director of growth at Great Places Housing Group agreed and said shared owners tended to fully staircase within five or six years.
When asked if shared owners understood the affordability trajectory of the scheme, Oliver Boundy, executive director of development at Anchor, said the information available varied and there was little standardisation meaning there was not a common understanding.
Milcheva said the rises in rent could be predicted as this was based on CPI, but service charge was where problems arose.
“The unpredictable element comes from service charges. We have no information on service charges in general – also from the private rental market – but they are a very large part of the overall expense,” Milcheva added.
Helen Spencer, executive director of growth at Great Places Housing Group, said achieving affordability was beneficial to the customer and the provider. She said service charges were regulated and carefully budgeted by housing providers, then reported back to the customer.
Miller said mortgage rates added to the cost combined with the maintenance within service charge and increasing rent, and added: “The same things apply to any tenure where there are communal services being applied”.
She said a way to improve the understanding around affordability was making information clear and available to the buyer.
Natalie Elphicke MP asked Miller if she accepted that service charge did add to the financial burden.
Miller said “absolutely”, adding that the financial assessment done at the beginning needed to take that into account.
