MOVING ON UP STAIRCASING IN SHARED OWNERSHIP HOUSING

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1 MOVING ON UP STAIRCASING IN SHARED OWNERSHIP HOUSING

2 CONTENTS Foreword 3 1 Executive Summary and Summary of Recommendations 4 2 Introduction 7 3 The context London s Housing crisis 8 4 The role of shared ownership housing in meeting 9 the needs of Londoners 5 The study background, methodology and key findings 10 6 Conclusions from the study 15 7 Summing up and Recommendations 16 8 Appendix 1 the role of shared ownership housing 18 some background Written by Colin Wiles for Wiles Consulting Ltd Designed and printed by Renaissance Creative

3 Foreword I am delighted to present this report, which confirms Gateway Housing Association s commitment to original research on housing policy issues. Shared Ownership has had a chequered history since its introduction in 1980, with an often bewildering variety of schemes and products being offered to potential homeowners. It was not until 1994 that the Charity Commission confirmed that charitable housing associations could lawfully provide shared ownership. Gateway began to develop homes for shared ownership in 1982 (as Victoria Park Housing Association). We are proud of our track record, and will shortly complete our first leasehold scheme for older people in Tower Hamlets. Shared ownership has sometimes been heavily criticised in the media as a model that is not working, that it is a stagnant market that does not achieve outright home ownership. However, we have noticed a recent surge in upward stair-casing activity and therefore commissioned research to discover what has changed. This report shows that there is a group or purchasers for whom outright ownership may never be attainable, but for those with incomes closer to the qualifying cap stepping up to full home ownership is still an attainable goal. Like many other housing associations the impetus for Gateway comes not from a drive to increase home ownership per se, but to provide a third way for lower income households to secure a home they can afford. Home ownership is falling and single and older households are growing. With demand out-pacing supply, and property prices in London and the southeast continuing to rise, there are fewer options for Generation Rent. Housing Associations are emerging as good providers of market rent. But, shared ownership remains a desirable and positive option for those who want a stake in an asset that is likely to appreciate over time. There is more that we can do to make the acquisition of shares easier for purchasers. It is in our interests to do so as the receipts it yields provides reinvestment in social housing. This report puts forward ideas on how we can do so. I hope you will find it makes a useful contribution to the debate and you enjoy reading it. Sheron Carter Chief Executive Gateway Housing Association Gibberd House, Ida Street, Poplar 3

4 1EXECUTIVE SUMMARY AND SUMMARY OF RECOMMENDATIONS 1. Executive Summary For Gateway Housing Association: Gateway Housing Association is a major provider of high quality shared ownership properties in East London. 88 percent of its shared owners are satisfied with their homes. Gateway Housing Association has experienced greater levels of staircasing than anticipated and higher than the national average. The majority of London housing providers also report an increase in the level of staircasing over the past two years. Four out of ten of Gateway s shared owners wish to move in the next five years, and of these just over seventy percent wish to move to outright ownership elsewhere. More than nine out of ten Gateway shared owners were aware of staircasing at the time of purchase and nearly nine out of ten felt it was an important factor in their decision to buy. The lack of adequate and regular income is a principal barrier to staircasing for nearly three in five Gateway shared owners, but for one in five respondents the fees involved in staircasing are a principal reason for not buying additional shares. Gateway s shared owners would like to see better and more comprehensive information about the pros and cons of staircasing being provided. Most of the lessons arising from this study, although specific to Gateway Housing Association, can be applied across the shared ownership sector in London and beyond. In order to promote staircasing Gateway Housing Association, along with all Registered Providers, need to gain a better understanding of the barriers that prevent share owners from Moving on Up and they need to be more pro-active in encouraging residents to staircase. Gateway Housing Association has an excellent track record in the provision of shared ownership homes and, given the right resources, could provide many more shared ownership homes for Londoners. The recommendations in this report includes 15 practical steps that Gateway (and other affordable housing providers in London) could take to promote and encourage staircasing. These are listed in section 7. For the housing sector as a whole: Shared ownership has an important and growing part to play in meeting the needs of Londoners on low and middle incomes. Even though shared ownership was created as a stepping stone to outright ownership there is less mobility in the shared ownership sector than in the owner occupied sector as a whole. Shared ownership also suffers from some systemic and structural blockages and has suffered from some adverse publicity in recent years. It needs to be more flexible and less bureaucratic if it is to have wider appeal for Generation Rent those priced out of the housing market. 4

5 Staircasing is a key component of mobility within the shared ownership sector. The greater the level of equity owned by shared owners the greater their chances of moving out of the sector into outright ownership, or to another shared ownership property. Greater mobility within the shared ownership sector will allow more entry-level purchasers to benefit from shared ownership, including existing social housing tenants. Staircasing also provides landlords with valuable receipts that can be used to fund new homes, including the re-purchase of shared ownership properties bought under pre-emption provisions. Although most shared owners know and understand about staircasing more could be done to assist and encourage owners to staircase. Registered providers need to keep a close watch on the overall costs of shared ownership, including service charge costs, to ensure that it is genuinely affordable to people on lower incomes. Summary of Recommendations. Housing providers should: 1. Provide comprehensive welcome-pack information for those enquiring about shared ownership and for new owners, allowing them to see exactly what up-front costs and monthly payments are involved in a shared ownership purchase, ensuring that information about service charge costs is accurate and realistic. 2. Provide an on-line mortgage and fee calculator for new and existing owners, allowing a range of permutations to be entered (such as interest rates, the share to be purchased, fees etc) to arrive at an overall cost for purchase and future staircasing. This should include up-front costs and the projected monthly annual cost, inclusive of rent and service charge. 3. Improve the level of intelligence about prospective and existing shared owners, through regular surveys, resident forums and newsletters in order that their current circumstances and aspirations are kept up to date, and that they can be targeted with timely and relevant information. 4. Use tenant census data and other intelligence to create a list of potential shared owners who can be quickly identified and contacted as soon as a property becomes available, including existing social housing tenants who are able to afford shared ownership (and who would release much-needed social housing for those on housing registers). 5. Consider providing free valuations as a way of encouraging staircasing, and discounting other fees, such as solicitor s fees or mortgage fees, offering a cashback payment to be set against capital receipts. 6. Provide shared owners with regular bulletins about the shared ownership sector and the state of the housing market and the prospects for staircasing. 7. Work with the London Home Ownership Group to re-model the shared ownership product offered by Registered Providers so that it becomes a more understandable and recognisable brand. 8. Consider extending shared ownership to existing stock for example, conversions which take place under the affordable rent programme that could be sold under the shared ownership model. 9. Housing providers should consider using the receipts from shared ownership sales and staircasing to fund new posts that could take forward the recommendations set out in the report to promote staircasing, using ethical but commercial marketing and promotional methods that match those used by the private sector. 5

6 About Gateway Housing Association Gateway Housing Association was formed in 2008 when Bethnal Green and Victoria Park Housing Association merged with Labo Housing Association. Gateway is a community based housing association with 2,800 properties, primarily in the London Borough of Tower Hamlets. Gateway s roots go back to 1926 when Bethnal Green Housing Association was formed. The first scheme at Queen Margaret Flats (still owned and managed by Gateway today) was opened in The name Gateway reflects the association s history, location and ambitions. Firstly, Tower Hamlets is the traditional gateway for migrant communities entering the UK, going back to the Huguenots who fled religious persecution in seventeenth century France. Secondly, Gateway s main focus of operation is in east London which forms part of the Thames Gateway region. Thirdly, Gateway believes that decent affordable housing is a gateway into a good quality of life for people on below average incomes. This report has been produced by Gateway Housing Association as a contribution to the debate on shared ownership and as evidence of its commitment to innovation and thought leadership. 6 Emerald Court, Bow

7 2INTRODUCTION Staircasing is where shared owners buy additional shares in their home up to a maximum of 100 percent. Gateway appeared to be bucking the trend with higher levels of staircasing than the national average, and beyond their own budget assumptions. During 2012/ percent of their shared owners (who owned less than 100 percent of their home) bought additional shares. Shared ownership was originally designed as a housing product that would allow people to climb the rungs of the housing ladder and move to outright ownership, allowing others to take their place. But as house prices continue to outpace incomes it is clear that shared ownership could and should play a growing role in helping economically active households on low and medium incomes into home ownership. In its August 2013 report, Homes for Forgotten Families 1, Shelter called for a major expansion of shared ownership to house 1.8 million households - the squeezed middle - who have been priced out of home ownership and who have no hope of moving into social housing. For London, this means families earning between 20,000 and 45,000 a year. According to Shelter, even with the new Help to Buy initiative 78 percent of these families will be unable to buy outright, yet 95 percent would be able to afford shared ownership. The report proposes that a public investment of 12bn (less than 1 percent of GDP) could build 600,000 new shared ownership homes, that is enough to offer almost half of England s families in the private rented sector a chance to get on the housing ladder. In recent years, one of the most important reports on shared ownership and staircasing was carried out by Cambridge University for Thames Valley Housing Association in The report found that the wider shared ownership sector had lower levels of mobility than the housing market as a whole. Since 2004/05, the percentage of shared ownership stock resold each year has never exceeded 2.3 percent. This compares to around 3 percent in the wider housing market. The level of staircasing within the sector had fallen to 0.9 percent of stock by 2010/11. Some shared owners those who bought at the height of the boom are now in negative equity. Details of this report and background information on the shared ownership model can be found at Appendix 1. Staircasing allows shared owners to build up more equity in their property and to move towards outright ownership. But it also provides valuable capital receipts that allow registered housing providers to build more homes. It therefore contributes to both mobility and investment within the affordable housing sector. Yet there has been surprisingly little research carried out on the barriers to staircasing and the steps that could be taken to promote and encourage it. We sought to know more about staircasing what motivates residents to staircase, what barriers stand in their way and whether lessons could be learned for both Gateway and the wider sector. We were also keen to know to what extent we were bucking the trend in terms of the recent increase in staircasing applications. This report provides some answers to those questions and is offered as a contribution to debate within the sector about the role of shared ownership housing in London and beyond. It includes a review of London s housing crisis, a summary of the shared ownership model and a survey of Gateway s shared owners. 1 See Shelter. data/assets/pdf_file/0014/702023/ Shelter_-_Homes_for_forgotten_families.pdf 2 Understanding the second-hand market for shared ownership properties Cambridge Centre for Housing and Planning Research. Anna Clarke and Andrew Heywood May

8 3THE CONTEXT LONDON S HOUSING CRISIS England is experiencing a housing crisis, and its epicentre is in London. UK house building is at its lowest peacetime level since 1923 and in the year to September 2013 only 107,950 new homes were built in England 3. Most commentators accept that the country needs to build at least 250,000 homes a year up to This is because new households are forming at the rate of 232,000 4 a year as a result of people living longer, living in smaller households and as a result of net inward migration. In London there were 405,806 households on local authority waiting lists in 2013, with 103,215 households seeking homes in Hackney, Newham and Tower Hamlets alone. 5 In housing terms, London is like another country. It has very different characteristics to the rest of the UK and the operation of its housing market has a profound impact upon housing markets across the south east of England. House prices in much of the country have been static or falling since the crash of 2007, but London has seen consistent rises in house prices. Over the year to November 2013 London prices rose by 10.6 percent and the average house price (at Nov 2013) was 396,646 6 The average house price in Tower Hamlets was 390,682. According to the Council for Mortgage Lenders the average deposit for first-time buyers in London in August 2013 was 64,000. Latest estimates show that 27 percent of the UK s housing wealth is in London 7 with a total value of 1.7 trillion. The housing stock in the ten richest London boroughs is worth as much as the housing stock of Wales, Scotland and Northern Ireland put together. 8 The private rented sector in London has seen rapidly rising rents in recent years and is now larger than the social rented sector. A report by the London Assembly s Housing and Regeneration Committee (June 2013) 9 showed that the private rented sector in London had grown by 75 percent in 10 years. Latest figures from the ONS show that London rents are rising faster than in any other region. According to the HomeLets rental index, the average private sector rent in London was 1,263 per month in November. The cost of living crisis is fundamentally a housing crisis. Tequila Wharf, Stepney 3 See CLG live tables at: https://www.gov.uk/government/organisations/department-for-communities-and-local-government/series/house-building-statistics 4 CLG household projections. https://www.gov.uk/government/uploads/system/ uploads/attachment_data/file/6395/ pdf 5 CLG live tables on rents, lettings and tenacies. 6 See Land Registry data at data/assets/pdf_ file/0011/49529/hpireport pdf 7 See. 8 See: SitePageId= See: Making%20the%20Private%20Rented%20Sector%20Fit%20for%20Purpose%20Final.pdf 8

9 4THE ROLE OF SHARED OWNERSHIP HOUSING IN MEETING THE NEEDS OF LONDONERS Registered providers of affordable housing have a critical role to play in meeting the housing needs of low and middle income Londoners. The Greater London Authority funds affordable housing providers in London. They took on this role from the Homes and Communities Agency in 2012 and the GLA continues to use HCA systems and guidance for most of its housing provision, with a few variations. There were 9,214 affordable housing completions in 2012/13, of which 2,709 were affordable home ownership. 10 The mayor of London issued a revised housing strategy in November The London Plan aims for 32,210 net additional homes to be built each year. The current housing strategy for Tower Hamlets (2009/12) identifies the key challenges and opportunities for this diverse and complex borough. 35 percent of the population are owner-occupiers, which is well below the national average of 65 percent. 24,428 households were registered on the Common Housing Register in The average property price in Tower Hamlets in 2009 was 309,326 and by November 2013 this had risen to 390,682, according to Land Registry figures. The strategy identified the lowest quartile entry-level prices in the Borough as Bromley By Bow/Mile End East for a 1- bedroom flat at 169,995, rising to 250,000 in Blackwall/Cubit Town/ Millwall. These prices should be uplifted by at least 11 percent to reflect increases in house prices over the past four years. An income of at least 50,000 would be required to access the cheapest owner occupied property in the borough. This means that shared ownership has an important role to play in helping those with lower incomes onto the housing ladder. The strategy points out that registered providers of social housing will play an increasingly important part in delivering the borough s wider housing objectives. This will include intermediate housing for households on low to medium incomes. Tower Hamlets wants to create more housing choices for economically active residents who have children and wish to stay in the borough. Historically, residents whose housing requirements have grown would choose (if financially able) to move further out into the Sub Region where house prices have been lower and the house type house with garden is more in line with their aspirations. However, the Strategy Team at Tower Hamlets have had cause to review the shared ownership model due to some new homes being delivered at high prices. They also have queries about the relative housing need of households who take up shared ownership properties. This offers a clear challenge to registered providers to provide new homes that are affordable to local people on modest incomes who have high levels of housing need. In recent years, shared ownership has suffered from some adverse publicity. This has arisen partly as a result of the credit crunch of 2007/08, which saw some shared owners becoming trapped in negative equity. But there have also been cases where housing providers have given a poor service, for example in failing to give accurate estimates of service charges. Shared ownership dreams shattered (The Independent 24 June 2012) highlighted the issue of negative equity. The hidden dangers of shared ownership (Guardian 3rd September 2013) highlighted the case of Richardson v Midland Heart, 2007, where a landlord was granted a possession order against an owner who was 8 weeks in arrears with rental payments. The implication of this case was that the 99 year lease was little more than a tenancy and that the owner did not own their home but had merely made a down payment on the property. Shared ownership flaws reveal void in young people s housing options (Guardian 9th September 2013) built on this case and argued that shared ownership needs to be more secure yet more flexible if it is to appeal to Generation Rent. Criticising the current model of shared ownership, the article states any affordable home ownership model needs to do more than combine all the inflexibility of home ownership with the financial insecurity of renting while leaving home buyers at the mercy of a housing bubble Such stories can damage the reputation of the shared ownership model and may deter prospective buyers from entering the sector. This makes it even more imperative that housing providers should identify and deal with structural blockages and simplify and clarify the legal and administrative burden for potential and existing owners. 10 See Starts%20and%20Completions%20-%20up%20to%20end%20of%20July% %20-%20published.pdf 9

10 5THE STUDY BACKGROUND, METHODOLOGY AND KEY FINDINGS 5.1 Background to the study Gateway has 342 shared ownership properties within its portfolio. 110 owners (32 percent) have staircased to 100 percent. Owners of the 232 remaining properties own between 25 percent and 75 percent of their homes. In 2012/13 11 starcasing sales were completed and this generated an additional million in receipts against a budget of 500,000. During 2013/14, 4 owners have staircased and 13 applications are in hand. The forecast budget of 850,000 is likely to be exceeded by a significant margin. Assuming that at least 12 owners staircase in the current year this means that the percentage of people staircasing will be 5.2 percent of all those who own less than 100 percent of their property. This level of staircasing is around five times the level identified in the Cambridge University study for 2010/11 across the country as a whole, (but only slightly above the national figure of 4.3 percent recorded in 2001/02). We were keen to identify if our shared owners were bucking the trend in terms of East London and London as a whole, or whether this increase in staircasing was part of a general trend. Past studies have shown that barriers to staircasing included affordability, property values growing faster than incomes, availability of mortgage finance and the fees and costs associated with staircasing. The study had four aims: to look at how Gateway compares to other providers; to understand what motivates owners to staircase; to investigate the barriers to staircasing; and to set out what Gateway and other housing providers can do to ease the process. 5.2 Methodology An on-line survey was carried out with 42 shared owners and follow up discussions were held with some of the respondents to clarify answers and to garner further information about their situation and their views of staircasing and shared ownership. Members of the London Home Ownership Group a total of 33 registered housing providers were also asked to provide figures and responses on their own staircasing experience. Key staff at Tower Hamlets also contributed to the report. The aim was to provide a quantitative study of a selected group of Gateway shared owners, some qualitative information about perceptions, motivations and aspirations, and feedback from other Registered Providers and Gateway s principal local authority in order to build up an all round view of staircasing. 5.3 Key findings 5.4 Profile of respondents 8% 8% HOUSEHOLD COMPOSITION 32% 32% 5% 5% 38% 38% 1 Adult Adult 2 Adults Adults 2 Adults Adults 1 Child Child 2 Adults Adults 2 Children Children 2 Adults Adults 3 Children Children Comment: Seven in ten respondents were single people or couples without children. Comment: Seven in ten respondents were single people or couples without children. 41% 41% 17% 17% Comment: Seven in ten respondents were single people or couples without children. SHARE OF PROPERTY OWNED 7% 7% 52% 52% 25% 25% - 50% 50% 51% 51% - 75% 75% 100% 100% Comment: The open market value at the date of purchase ranged form 91,000 in The open market value at the date of purchase ranged form 91,000 in Comment: 1993 to 345,000 The in open market value at the date of purchase 1993 to 345,000 in ranged form 91,000 in 1993 to 345,000 in

11 7.1% ETHNIC GROUP OF RESPONDENTS 10.7% 3.6% 3.6% 75% White - UK White - Irish Mixed - White and Asian Asian/Asian/British-Pakistani Asian/British - Chinese Comment: 75 percent of respondents were White British. Comment: 75 percent of respondents were White British. According to the 2011 census, 31 According percent of the to population the 2011 of Tower census, Hamlets 31 comprised percent White of the British population residents. The average length of time that respondents had lived in their homes was 13.5 years. The of Tower Hamlets comprised White British residents. national average for the owner occupied sector as a whole is around 11 years. The average length of time that respondents had lived in their homes was 13.5 years. The national average for the owner occupied sector as a whole is around 11 years. 5.5 Awareness of staircasing 93 percent of respondents had been aware of staircasing when they bought their property and 87.5 percent stated that the availability of staircasing was an important factor in their decision to purchase their home. 7.5 percent said it was not an important factor and only 5 percent said that they did not know about staircasing when they purchased their home. Since purchasing their property 33 percent of respondents had purchased additional shares and staircased upwards. 26 percent had staircased to full 100 percent ownership. 67 percent had not staircased at all. Comment: Awareness of staircasing appears to match the high levels identified in the Cambridge University study, but the relative importance of staircasing in the decision to purchase is significantly higher for Gateway residents. This appears to reflect the special nature of the London housing market, and this is highlighted by the answers set out in the next section. 5.6 Motivation for staircasing Those who had staircased were asked to rank a series of reasons behind their decision. For those who had staircased, 100 percent of respondents stated that the desire To build up as much investment in my home as possible had been very important or important. Other key motivations that were described as very important or important were: 5.7 Funding of staircasing For those who had staircased, in 80 percent of cases this had been funded by a mortgage. 13 percent had received support from family and 6 percent had used an inheritance. 5.8 Differences between those who had staircased and those who had not There were some clear differences between those who had staircased to 100 percent and those who not staircased at all or had staircased to a maximum of 75 percent (only one member of this group had gone beyond 50 percent). Surprisingly the length of tenure for both groups was very similar years for the 100 percent group and 13.3 years for the less-than 100 percent group. Thus, length of tenure does not appear to be a significant factor in the decision to staircase. However, in the group that had staircased to 100 percent average annual gross incomes were significantly higher - 48,000 - and incomes had increased by an average of 16,600 since they had purchased the property. Incomes, including income from investment, ranged from 17,000 to 100,000 per annum. This group was also more likely to have received funds from investments or inheritances. By contrast, for the less than100 percent group their average income was significantly lower, at 37,370 and the average increase in income since they purchased their property was only 6,000 per annum. Incomes ranged from 22,000 to 60,000 per annum. This group was also less likely to have received additional funds from inheritances and other investments. Comment: It is an obvious point, but the availability of a regular and adequate income, or other sources of funding, is a key determinant of the ability to staircase. But it is not the only factor, as responses to the following question show. To build up as much investment as possible To reduce the level of rent I paid I was worried that house prices were rising and that I would be unable to purchase elsewhere I was worried that mortgages would be harder to obtain in the future 100 percent 73 percent 73 percent 53 percent Comment: It seems clear that this group has a good understanding of the wider housing market in London and is fully aware that future mobility and security required them to build up as much equity in their property as possible in order to increase their chances of moving to full ownership. 11

12 5.9 Reasons for not staircasing Respondents who had not staircased were asked to state the principal reason for NOT staircasing. Insufficient income/i could not afford it Fees involved in re-mortgaging The cost of surveyor and other fees Concern that house prices might fall Other Other reasons included: We need a bigger property (i.e. they did not wish to staircase in a property that was too small), I felt it would be easier to sell a 50 percent share to first time buyers than a 100 percent share, The higher stamp duty discouraged me and Not sure it was worth it. No respondents expressed a concern about negative equity. Comment: Inadequate and regular income is the primary barrier to staircasing and this chimes with the Cambridge University study. But other systemic barriers are significant with one in five respondents stating that the fees involved in staircasing are a principal reason for not buying additional shares Could Gateway Housing Association have done more to assist with staircasing? 40 percent of respondents felt that Gateway could have done more to assist with staircasing. 60 percent said they could not have done more. Respondents were asked to describe what Gateway could have done to help. Answers are grouped under the following broad headings. Provide better, clearer and more meaningful information Provide financial assistance with valuation and other fees Deal with solicitor queries quicker Offer rent free weeks to allow shared owners to build up a deposit Allow owners to buy smaller shares at each occasion 58 percent 12.5 percent 8.3 percent 4.2 percent 17 percent 59 percent 17 percent 8 percent 8 percent 8 percent Many residents had positive and constructive ideas about how Gateway could have done more to promote staircasing. These included: Allowing owners to purchase smaller bites in order to facilitate staircasing. Providing up-front help with the payment of fees (solicitor and valuations). Providing regular information and updates for shared owners. Updating the Shared Owners Handbook. Offering a discount on the purchase price to allow for the fact that rent has been paid on the property. Providing an on-line mortgage and fee calculator so that residents can see exactly how much it would cost to staircase. Setting out a clear procedure from start to finish on the staircasing process. One resident had sought advice from another housing association who had produced a useful Welcome Pack, with step by step information on what to do and how to do it. The pack was written in layman s language and set out a clear process. Several residents repeated this desire for clear and concise information about the pros and cons of staircasing in order to arrive at a full understanding of the costs involved. It was felt that a link on the website with a cost calculator, setting out the full up-front and monthly costs of staircasing would be a helpful addition to Gateway s service. Comment: Four in ten shared owners felt that more could have been done to assist them with staircasing. The clear message from this group is that better and more comprehensive information would assist owners to make more informed choices about staircasing. Some housing associations (e.g. Newlon) provide an on-line mortgage calculator but it appears that owners want more than this. They are looking for a simple on-line resource that would set out in clear detail the up-front costs of staircasing, including the costs of valuations and re-mortgaging, as well as a comparison of current with future monthly costs (including the reduction in rent arising from staircasing), so that owners can see at a glance what extra costs would be involved, allowing a range of permutations (interest rates, percentage purchased, value of purchase etc). Owners can then make an informed decision about whether or not to proceed. A secondary concern is the issue of fees, an important issue for 17 percent of this group. Typically, fees will include a valuation charge of around 100, solicitor s fees of around 600, and a re-mortgage fee of 200 to 1,000. Housing providers could help to incentivise staircasing by assisting with at least some of this burden, for example by offering a cashback of 20 percent or more of fees paid on the basis that this can be discounted against the additional receipt received from the purchaser. Advertising through regular rent statements. Reducing the cost and paperwork involved in fixing the market value of the flat for staircasing purposes. 12

13 5.11 How satisfied are Gateway s shared owners? OVERALL SATISFACTION WITH PROPERTY 10% 49% 2% 2% 39% 88 percent of shared owners are very satisfied or satisfied with their home. This is a very high level of satisfaction and reflects credit upon Gateway s leasehold service. Many residents expressed praise for Gateway: They were actually very helpful. They were very helpful when we were staircasing. They were very helpful with all the info I needed Moving intentions 38 percent of respondents stated that they intended to move within the next five years. 62 percent had no intention of moving within 5 years. For those who intended to move the intended destinations and tenures were: Another shared ownership property in East London 21.5 % Outright ownership in East London 21.5 % Another shared own property elsewhere in London Very Satisfied Satisfied Neither Satisfied or Dissatified Dissatisfied Very Dissatified 7 % Outright ownership elsewhere in London 43 % Outright ownership outside London 7 % Comment: There is clearly a strong appetite among many shared owners to move onwards and upwards. Of the four in ten who wish to move, just over 70 percent aim to move into outright ownership elsewhere in the next five years The views of London Home Ownership Group members The 33 members of the London Home Ownership Group (LHOG) were asked to respond to a short survey on staircasing. The members of the group are all significant providers of shared ownership housing in London. They were asked to provide figures on their levels of staircasing over the past three years, to identify the barriers to staircasing and to set out the steps they have taken (if any) to encourage and promote staircasing. 24 members of the group responded. Several did not keep detailed records of staircasing activity. One respondent stated, Resales and Staircasing (although very important) tends to be overlooked as an area requiring detailed information gathering. However, three quarters of respondents reported a significant increase in the level of staircasing over the past three years. These comments were typical: This year we ve received approximately 25 percent more in staircasing receipts month on month compared to last year. This year we have seen an increase in staircasing. We ve almost already reached the number of staircasing we had for the whole of last year in the first half of this year. Several providers noted that staircasing in their London stock was higher than in other parts of the country where they held stock. For those who provided information, the level of staircasing as a percentage of their total shared ownership stock (where the landlord still owned equity) over the past three years had varied as follows. Range Average Gateway 2010/11 1.4% to 4.5% 2.6% 4% 2011/12 1% to 4.8% 2.5% 1.3% 2012/13 1.4% to 4.9% 3.1% 4.7% Although Gateway has bucked the trend in 2012/13 with 52% more staircasings than the London average it had fewer staircasings than average in 2011/12. Even though Gateway has shown a relatively high level of staircasing over two of the past three years it is not significantly out of kilter with other providers. Members of LHOG did not report any significant differences between staircasing in Tower Hamlets, East London and the rest of London. For one provider, East London appeared to have a lower level of staircasing than other parts of London. The increase in levels of staircasing appears to be a Londonwide phenomenon. The degree of active marketing and promotion of staircasing was patchy and few providers carried out any co-ordinated campaigns. Work to promote staircasing tended to be ad-hoc and irregular. Typical comments were: We don t at present actively encourage staircasing but it is something we ll be considering in the near future. We do not promote continuously but include an article in our Home Owner magazine as well as provide details on our website and to those considering selling or in financial difficulty wishing to sell. One provider had targeted owners who had equity and invited them to a presentation where surveyors, solicitors and financial advisors provided information. This had been very successful and had led to a surge in applications and had therefore not been repeated. One provider (the exceptional case) had a more sophisticated approach, and had developed a staircasing strategy that gathered information about the current mortgage arrangements of owners. This allowed them to map exactly when fixed rate mortgages were coming to an end and target 13

14 owners with suggestions about new mortgage deals and opportunities for staircasing. Four respondents had previously offered small incentives to help with transaction costs, including the offer of a fixed contribution towards legal fees for those who bought extra shares by a certain date. One commented: Time-limited incentives seem to work best, but free up-front financial advice is another way to get people going. Several admitted that their level of intelligence about shared owners was patchy. This comment was typical: In my experience very little is known about existing shared owner s circumstances which means it is very difficult to form a targeted marketing strategy. One provider suggested that a co-ordinated collective thinking approach would be useful. They stated: All Registered Providers have differences in the way their teams operate but the development of some standard copy, which could be used across the sector, or indeed a standard Powerpoint or YouTube video which explains how it works would add value. From the point of view of registered housing providers the level of intelligence about the circumstances of their shared owners is less than comprehensive and this is reflected in the comments made by strategy staff at Tower Hamlets. Providers should consider a more commercial approach. Registered housing providers work to a different ethos to the private sector, but if a private provider of housing had the opportunity to boost their capital receipts with relatively small levels of risk they would no doubt put in place sophisticated marketing and promotional campaigns to encourage staircasing. Registered housing providers may need to do more to understand and implement the techniques of the private sector, whilst retaining their social purpose, and ensuring that shared owners do not over-commit themselves. Some members of LHOG came forward with useful ideas about joint marketing operations and ways of breaking down the barriers to staircasing and these are highlighted in the Recommendations in section 7. Comment: Providers of shared ownership housing in London report a surge in staircasing applications. This appears to reflect the buoyancy of the wider housing market in London and the fact that owners feel the need to build up equity in order to improve their prospects in the wider housing market. 14 Grove Dwellings, Stepney

15 6CONCLUSIONS FROM THE STUDY This study has identified a range of qualitative and quantitative information about Gateway Housing Association s shared owners and the wider role of shared ownership in London. There are some similarities between the results and the Cambridge University report, but some differences also emerge. For Gateway Housing Association the study shows that: Gateway Housing Association provides a high quality shared ownership product with almost nine in ten of its residents being very satisfied or satisfied with their property. Nine out of ten respondents were aware of staircasing at the time of purchase and nearly nine out of ten felt it was an important factor in their decision to buy. The first figure broadly chimes with the Cambridge University report, but for Gateway residents the availability of staircasing appears to have been a more important factor in their decision to purchase. Gateway Housing Association (and other London providers) have seen a surge in staircasing applications over the past three years. Gateway s current level of staircasing is around four times higher than the national level in 2010/11 identified in the Cambridge University study, and higher than the London average in two of the last three years. But it is not significantly out of kilter with other housing providers in London. Two thirds of respondents had not staircased and within this group nearly three out of five stated that the main barrier to staircasing is an inadequate and regular income. But for one in five fees and other up-front costs are the principal barriers to staircasing. Three out of five residents in this group believe that better and more directed information would have helped them to make a more informed decision about staircasing. 17 percent felt that assistance with fees and other up-front costs would have acted as an incentive to staircasing. The rise in applications to staircase over the past three years, for both Gateway and other London providers, appears to reflect a clear understanding among shared owners that the housing market in London is buoyant and that they need to build up as much equity as possible if they are to move into outright ownership elsewhere. 15

16 7SUMMING UP AND RECOMMENDATIONS This study shows that Gateway Housing Association provides a very good shared ownership service for its residents, with nearly nine in ten being satisfied with their homes. There is always room for improvement, and Gateway could enhance its very good leasehold service by providing better and more targeted information for shared owners. Gateway has experienced a significant increase in staircasing applications in the last two years but this appears to be a phenomenon that is common to other housing providers in London. It appears that shared owners who staircase upwards have a good understanding of the current state of the housing market and know that they will need to build up as much equity in their property as possible if they are to move into full home ownership. In terms of the wider London housing market, shared ownership plays an important role in meeting the housing aspirations of people on low and medium incomes. It offers people the chance to step onto the first rung of the homeownership ladder, but the shared ownership model has been beset by complexity and systemic barriers that have dissuaded people from buying or from buying additional shares in their property. It has also suffered from some recent adverse publicity relating to its inflexibility and inaccuracy over service charge estimates. One criticism of the shared ownership model is that successive governments have insisted upon launching new initiatives that tend to confuse consumers and lenders alike. Consumers have to sift through various websites to find what they need, and many people believe that they are not eligible, when they are. The model is also beset with restrictions and it is harder to buy and sell a property than in the mainstream market, making people feel that this is an inferior version of home ownership. Shelter propose that shared ownership should operate more like the mainstream market and should focus on existing stock as well as new build. But registered providers will need to do more to understand how shared ownership fits into the wider housing market and do more to improve the branding and marketing of shared ownership. They also need to simplify the product and break down some of the barriers that exist within the model. Staircasing is an important element of mobility within the shared ownership sector because it allows owners to build up more equity in their property which gives them a greater opportunity to move into full ownership. By promoting and encouraging staircasing registered providers would enable more people to enter the shared ownership market and it would also generate capital receipts that can be ploughed back into new homes a double benefit. There has been a lack of research on staircasing, both in terms of the barriers that dissuade owners from buying extra shares in their property and the measures that housing providers could take to make it easier for owners to move on up. In order to encourage greater levels of staircasing housing providers need to have a clear understanding of the barriers to staircasing. This will require them to gather relevant and timely intelligence about the needs and aspirations of their shared owners, to communicate effectively on the pros and cons of staircasing and to market their products more effectively. This study contributes to the knowledge of staircasing and offers some practical steps that Gateway Housing Association could implement. However, many of these measures are applicable to Registered Providers as a whole. Tequila Wharf, Stepney 16

17 These practical steps are set out below. 7.1 Recommendations for Gateway Housing Association, applicable to all providers of shared ownership housing in London 1. Provide timely, simple and comprehensive information for those enquiring about shared ownership, allowing them to see exactly what up-front costs and monthly payments would be involved in a shared ownership purchase. 2. Ensure that information about service charge costs is accurate and realistic. 3. Provide an on-line mortgage and fee calculator for new and existing owners, allowing a range of options to be entered (interest rates, share purchased, fees etc) to arrive at an overall cost for shared ownership, including up-front costs and the monthly annual cost, inclusive of rent and service charge. This could be developed with the London Home Ownership Group. 4. To further develop the on-line calculator for staircasing purposes, so that existing shared owners can quickly work out an exact figure for the up-front and monthly costs of staircasing, including any reduction in rent. 5. Provide a welcome pack for new shared owners setting out this information in clear and simple terms and including comprehensive information about staircasing. 6. Set precise target timescales for dealing with the staircasing procedure, so that owners will have a clear idea of how long the process will take. 7. Improve the level of intelligence about prospective and existing shared owners, through regular surveys, resident forums and newsletters in order that their current circumstances and aspirations are kept up to date. 8. Use this intelligence to create a list of potential shared owners who can be quickly identified and contacted as soon as a property becomes available, including existing social housing tenants who are able to afford shared ownership (and who would release much-needed social housing for those on housing registers). 9. Make contact with shared owners when their fixedterm mortgages are up for renewal in order to provide information about the benefits of staircasing with relevant mortgage advice. 10. Consider providing free up-front valuations as a way of encouraging staircasing. 11. Consider discounting other fees, such as solicitor s fees or mortgage fees as a way of incentivising staircasing. This could be offered as a cashback payment and set against capital receipts. 12. Provide shared owners with their own newsletter or regular bulletins in order that more targeted information can be disseminated, and ensure that shared owners are kept up to date with market data. 13. Within the wider shared ownership market, consider working with the London Home Ownership Group to re-brand the shared ownership homes offered by Registered Providers so that they become a more understandable and recognisable product. 14. Consider extending shared ownership to existing stock for example, conversions which take place under the affordable rent programme could be put up for sale under shared ownership instead. 15. Specifically, housing providers should consider using the receipts from shared ownership sales and staircasing to fund additional posts to develop some of the recommendations listed above, using commercial marketing and promotional techniques to identify potential shared owners and encourage existing shared owners to staircase, within a clear ethical framework. Such posts should also seek to identify social housing tenants who could afford to move on up into shared ownership housing as a first step on the housing ladder. 17

18 7APPENDIX 1 The role of shared ownership housing some background There are approximately 145,000 shared ownership properties in England, which represents less than 1 percent of stock in the owner occupied sector as a whole. London has the highest number of shared ownership homes of any region 28,000. Shared ownership allows a household to purchase a share of their home usually between 25 percent and 75 percent on a long lease and pay a sub-market rent on the un-owned share. Owners experience the ups and downs of full ownership as their equity in the property will rise and fall with the market. They can re-sell their property to someone nominated by their landlord, or on the open market if the landlord is unable to identify a suitable purchaser. Most shared owners have the right to buy additional shares in their property up to full ownership. This is known as staircasing. Most leases usually last 99 years. To qualify for grant funding the lease must be at least 25 years longer than the loans used by the association to build the property. Grant-funded schemes in London are provided under the HomeBuy (First Steps) scheme. The current qualifying criteria for shared ownership housing in London are: The applicant s household must earn less than 66,000 per year (up to 80,000 for three bed properties). They must be unable to buy a suitable property unaided. They must not be an existing homeowner or shared owner unless they can demonstrate that they are in housing need (e.g. overcrowded) and unable to afford to meet their needs without assistance. The following groups receive particular priority (in order): Existing social tenants and serving Ministry of Defence (MoD) personnel. Locally determined priorities local authorities are able to choose priority applicant groups according to the specific needs of their locality. Other first-time buyers who fit all other qualifying criteria above. The current state of the shared ownership market One of the most important recent reports on the re-sale of shared ownership properties in England is from Cambridge 18 University Centre for Housing and Planning Research for Thames Valley Housing in Understanding the second hand market for shared ownership properties. 11 Its key findings included: Shared ownership remains popular as a way of first time buyers getting onto the housing ladder but mobility out of the sector is not as good as hoped. Shared ownership properties come up for re-sale less frequently than open market homes, and second-hand shared ownership sales take longer than new-build shared ownership sales on the market, although sales times for both still compare favourably to open market sales. Shared owners generally looked to move out of shared ownership into full owner-occupation. Affordability constraints were the most common reasons cited that prevented this. Incomes had often not risen fast enough when compared with the substantial overall house price rises since they first bought, increasing the gap that shared owners must bridge. The lower deposits paid by many shared owners increased the risk of negative equity. Less than 1 percent of shared ownership sales were to those already in the sector. There is very little movement of shared owners from one property to another in the sector. Some shared owners expressed frustration at having to wait until the end of the 8-week nomination period before putting the property on the open market. There was a strong feeling that some registered providers were not as adept at marketing properties in the same way as estate agents. Staircasing The report also looked at staircasing and found a paucity of past research. Key findings included: The option to staircase is an attractive feature for most new buyers. The vast majority of buyers were aware of it at the time of purchase but it may be less important to prospective buyers than sometimes supposed. 11 Understanding the second-hand market for shared ownership properties Cambridge Centre for Housing and Planning Research Anna Clarke and Andrew Heywood May 2012

19 Staircasing to 100 percent had reduced in percentage terms from 4.3 percent of existing stock per year in 2001/02 to 0.9 percent in 2010/11. It has declined in absolute numbers too. During this period, approximately 82,000 shared ownership units were built in England resulting in a net increase in the size of the sector recorded in the Regulatory and Statistical Return from 90,839 to 144,733. The desire to staircase was often blocked by inadequate incomes and by systemic and structural barriers such as high re-mortgaging costs and the fees paid to solicitors and surveyors. Many purchasers felt that landlords should provide better and more regular information about the costs and benefits of staircasing. Model lease The HCA has produced a model lease written in plain English for shared ownership that providers can adjust to meet their local needs but several fundamental clauses must be retained as a condition of grant funding. Fundamental clauses in the model lease include: Alienation provisions these allow the landlord to find a suitable buyer for re-sale properties in order to retain the social purpose of shared ownership. They also prohibit sub-letting or disposal of shared ownership properties. Mortgage protection clause this protects lenders investment in the property by guaranteeing them a return on their investment in the event of a mortgage default by the purchaser. This is critical without it lenders would be unlikely to lend to shared owners. Rent review leases offered by Registered Providers must include rent review provisions based on the retail price index. The rent should not exceed 3 percent of the unsold equity, and a maximum of 2.75 percent is encouraged. Annual rent increases are limited to RPI plus 0.5 percent. Staircasing the shared owner has the right to buy additional shares in the property until they own it outright. This must be done in minimum 10 percent tranches. The additional shares are based on market value at the date of purchase. Many leases also allow downward staircasing. Right of First Refusal a covenant in the lease gives landlords the right to buy back the property for 21 years from the date at which the owner staircased to 100 percent. This is registered as a local land charge. The Registered Provider will have 8 weeks to decide to exercise the option to purchase the property. The HCA s model lease also includes a buy-back clause that gives Registered Providers the right to re-purchase a shared ownership property within 21 years of the owner staircasing to full ownership. Capital receipts from staircasing could be used for this purpose. Service charges are not covered by the fundamental clauses and therefore providers are generally free to set service charges as appropriate for each property. Emerald Court, Bow 19

20 Gateway Housing Association Mile End Road, London, E3 4PB General enquiries: Website:

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