I am a UK-based lawyer with nearly forty years' experience. I have joined Wikipedia in order to post an article on Graduated Ownership ( see https://en.wikipedia.org/wiki/User:Turner1234/sandbox/Graduated_Ownership). At the moment that's proving tricky - publication has been declined because of a 'lack of reliable sources'. I am hoping to overcome those difficulties in the near future. In the meantime, here's some of the thinking behind the concept.
I have been involved with low-cost homeownership in the private sector for the last 20 years or so. I was company solicitor with Redrow Homes (South East) and group legal director of Merlion Group.
In my work with Merlion, we launched many traditional shared ownership schemes, usually privately funded and owned 75/25 between Merlion and the tenant respectively. These schemes were usually more affordable than the traditional Homes and Communities Agency model, as no rent is charged on the un-owned portion.
A method of intermediate affordable housing delivery that always works well in the private sector is the shared equity scheme, which is becoming more acceptable to local authorities.
Typically the purchaser funds 75% of the market value of a property with a combination of cash and first mortgage loan.
“The problem with shared equity – from the local authority’s perspective – is that it is hard to maintain in perpetuity.”
There is absolutely no interest charged on the remaining 25% and the project funder retains a second charge on the title which ranks behind that of the main mortgage lender. On disposal of the property, depending on agreements in place with the local authority, the second charge may be repaid or renewed in favour of the next buyer.
The problem with shared equity – from the local authority’s perspective – is that it is hard to maintain in perpetuity, though I have seen local authority lawyers tying themselves up in knots trying.
In recent years, there has been a move away from invariably using a 75/25 split. By increasing the amount of the deferred payment to, say, 50% of open market value, affordability is considerably increased.
This experience leads me to suggest that a graduated ownership (GO) scheme would be a useful tool for providers – both public and private – allowing people who do not have the means to buy on the open market to become owners at different levels of participation, starting as low as 30% of open market value.
The GO scheme is based on the owner being able to self-fund a 5% deposit and a framework built around a restricted resale period, a method frequently used in the US, which ensures that the scheme is maintained for as long as the local authority and the provider agree. The scheme also provides an automatic bonus for the owner, in the form of a lump-sum increment on disposal.
Future Housing Review is working on GO models and these, together with detailed mechanics of the scheme, will be published on www.futurehousing.org shortly.
The recent report of Professor David Cowan et al highlights some of the limitations of a traditional shared ownership scheme, notably the hybrid nature of shared ownership tenure which is not found in GO schemes.
I believe that traditional shared ownership will remain a largely public sector product, and that it can no doubt be improved by judicious reform such as those recommended by Professor Cowan and his colleagues.
However, given that government has not yet suggested any convincing answers to the housing crisis, developing a GO model in order to expand homeownership across private and public sectors alike would be a worthwhile Plan B.
Nigel Turner, consultant solicitor with Bennett Griffin LLP, and director of Future Housing Review September 2015