Shared Ownership Housing

James Cartlidge Excerpts

Tuesday 14th July 2015 Westminster Hall

[James Cartlidge (South Suffolk) (Con)]

It is a pleasure to serve under your chairmanship, Mr Evans. I congratulate my hon. Friend the Member for Milton Keynes South (Iain Stewart) on securing this debate. I declare my interest: I am a director of a shared ownership property portal, so I have a very direct interest in—and, obviously, experience of—this subject.

Before making my points, I will make one comment about my hon. Friend’s proposal. It is very interesting and ingenious, and focuses on an important issue for me—the growing intergenerational issue that we are starting to face as a country and about which we need to think creatively. However, the historic problem with private shared ownership or shared equity schemes, shall we say, is the horrible issue of mortgagee and repossession. In other words, what happens if someone fails to pay? The reason why shared ownership has been very successful historically is that shared ownership leases contain a mortgagee protection clause. The housing association is a regulated social landlord; it will not go bust. Mortgage lenders trust that system and therefore, in effect, in the event of repossession there is a structure to operate.

There is much potential in my hon. Friend’s suggestion, but it would probably still be necessary to involve a regulated social landlord. For example, a property could be purchased and the applicant would take out a shared ownership mortgage in the usual way, but perhaps the investment would be used to part-fund the regulated social landlord simply because of the issue of landlord and tenant. If people simply go into partnership, there would be the horrible issue of what happens in the event of repossession, which always complicates matters.

I have had significant involvement in shared ownership, which is underestimated. One of my hon. Friend’s best points was that share ownership is perhaps not as well known now as Help to Buy, even though it has been running since the early 1980s. Help to Buy is a strong brand, but there is a key difference: it generally refers to equity loans, or shared equity schemes, which in essence mean that people buy 100% of a property but take out a loan for 20% of the deposit, normally paying no interest in the first five years, but legally owning the whole property.

With shared ownership, uniquely, a tenant owns part of a property, and just that part. They pay rent on the remainder, but are tenants of a social landlord and able to buy more shares through staircasing, as my hon. Friend mentioned, until they own the whole property. It is the best product for supporting home ownership, because it is the most sustainable. Say, for example, that I can afford 35% of a property and pay rent on the remainder: I staircase only when my circumstances allow me to. If I can afford only to remain on 35%, I can remain.

Another great strength of the shared ownership product is resales—a secondary market, important in towns such as Milton Keynes. People who type “£100,000 in Milton Keynes” into Rightmove would not expect to see any properties, but lots will come up, and I guarantee that nearly all of them will be shared ownership properties. People who have bought a shared ownership share of a new property can resell their share on the second-hand market. It is incredibly popular and the only system available in which people can buy a low-cost home ownership product relating to a second-hand home. That allows properties to come on to market if people cannot do any more staircasing. It is one of the great strengths of the property market.

London in particular is incredibly dependent on the product. In my property portal, resale properties go quickly when they come on to the market in London. Some critics of shared ownership have mentioned the difficulty of reselling, but, as with any property, it depends on location and other factors. In London, I believe that 97% of properties resell quickly. That has certainly been our experience.

There are weaknesses with the product. It can be complicated, but that is partly because it is restricted to those on lower incomes. The Help to Buy equity loan scheme has no income restrictions at all: there are good and bad reasons for that, but it is a different type of product. Shared ownership is targeted at those on lower incomes so it is not surprising that it has stricter rules. In London, local authorities will often overlay their own priorities and it can become quite a complicated product. There is an argument that, when the public purse assists people on to the property ladder, rules and restrictions should apply.

For me, the most important point is that shared ownership has less of an impact on the broader market. My worry about the equity loan product and Help to Buy is that there is a danger that it underwrites higher prices than there would otherwise be. With shared ownership, housing associations will take any profit and recycle it in building rental social rented properties and so on, for those on low incomes. Obviously, the same does not necessarily happen with equity loan properties. I am concerned that buying with a Help to Buy equity loan is simply maintaining prices at a higher rate than would otherwise be the case.

This is such a huge issue for our country, as I hope to say in the Treasury debate quite soon. I apologise to the Minister if I am not around to hear his speech. A long-running issue with Britain’s economy is boom and bust related to the housing market. It is a fundamental weakness of our economic history—I hope it will not be one of our economic future—so we have to be ultra-prudent with products that intervene in the housing market.

Shared ownership’s record is sustainable: it does not stimulate prices to the same degree as equity loan; it encourages sustainable home ownership, because people buy what they can afford; and it is more affordable for people starting off in the market. If I wanted to buy a £250,000 property with an equity loan, I would have to get a mortgage of 75%, but if I bought it on shared ownership I could buy a share of as little as 25%. There is a danger that people who buy shares that are too small may never staircase—that is a risk with shared ownership—but of course they can sell that share to others on the second-hand market, which has a balancing effect.

Overall, the proposal is interesting. Something has to be done about the inter-generational gulf: people are retiring with significant capital and young people are working hard but do not have the capital to access the property market. There is a kernel within what my hon. Friend is proposing, although, as he admits, it will need a lot of detail and thrashing out. I think he has hit the nail on the head. This could be the way to take shared ownership forward to the next generation. Shared ownership certainly needs more support, because it is the best product available to support sustainable home ownership.