In this cost of living crisis, shared ownership isn’t the housing lifeline some had hoped

Timea Szabo knew exactly what she was getting into when she bought a shared ownership flat in south London – or so she thought. She’d been a previous shared owner before, north of the river, and had managed to sell on her stake with ease, even making a small profit. When she moved to Woolwich following a relationship breakdown, Szabo was delighted to discover that the home she’d been renting was in fact a shared ownership property too, and the landlord was now looking to sell his share. She jumped at the opportunity. Now, with the cost of living crisis biting, she wonders if she did the right thing.

“When I bought it, at the end of 2018, the rent and service charge was already £260 a month which was quite steep, but I didn’t want to leave my support network and my son could stay at his nursery. I decided that on balance the benefits of living in that area would outweigh the increased cost,” she says. But since then, Szabo – a single mother who nevertheless earns a good income working in the financial services industry – has faced a triple hit on her earnings. Both the rent she pays and service charges for her building have increased steeply (the latter party because her building is caught up in the cladding scandal), and when she comes to remortgage next year she will face high-interest rates on her borrowing too.

“My [fixed rate] is due to come up next year and shared ownership mortgages are always more expensive,” she explains. “I feel so stupid saying this – I work in financial services and I have a law degree, and I have a good grasp of things – but I never realised it was more expensive. [Banks] do stress tests for mortgage affordability but they never do it for rent, but the rent element is the one that’s guaranteed to go up. On average your mortgage tends to go down over the years, unlike your rent which is always going up.”

Szabo wants to sell but can’t because cladding still needs to be removed from the exterior of her building before lenders will offer any prospective owner a mortgage against it. She is already struggling with costs and owes her housing association, Optiva, £5,000 in service charges. “I’m just lucky they haven’t pursued me through the courts,” she worries. “It has become unaffordable. I can’t even get out of this.”

Shared owners right across Britain are facing the same challenges. As the cost of living crisis bites, they are doubly exposed – both to the volatile mortgage market and with rents charged by housing associations on the portion of their homes they don’t own rising fast. Tenant-owners in some properties in London and the southeast have been warned rents may increase by as much as 17 per cent, linked to rapid inflation.

Housing associations who build and manage shared ownership properties are disinclined to artificially reduce rents to help their clients through this tough period; most have been explicit on their balance books that they will rely heavily on the rental income from shared owners to support their social housing tenants, who are likely to face benefit cuts and government-mandated caps on rent rises. London Mayor Sadiq Khan is so worried about the fate of poorer Londoners that he has called on social landlords to include them to freeze rents for both social tenants and shared owners.

In Islington, Harry Gough owns a share in a one-bedroom flat with Southern Housing Group. He bought the property four years ago, believing it would be the only way he could ever get onto the property ladder while living and working in the capital. “It seemed like a really good affordable way to buy in London. The flat was £450,000, of which I own 30 per cent. I was over the moon. I felt I was on the ladder and had my future prospects sorted.”

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Since then, his finances have taken a hit. First, his building was caught up in the building safety scandal, resulting in soaring service charges. Now he too faces the cost of living crunch. “The service charge is doubling, the rent is about to go up and because of the cladding situation last year when I was remortgaging I took a two-year [fix] as I thought the building would be fixed by then. I’m on 1.2 per cent at the moment and, let’s say I was on 5 per cent, I’d be paying an extra £200 a month.”

Gough has not heard from his housing association yet about what next year’s rise might be. “We haven’t had a word and I feel confident about saying that because I’m essentially the contact person for the development. There’s been no acknowledgement of the fact they might already be worrying. It’s a ticking time bomb.”

Gough is able to weather the financial winter because his girlfriend has moved into the one-bed property with him and can help share the cost of bills, but he is worried about his neighbours. “There are people ringing me maybe twice a week saying ‘I genuinely can’t afford this, I can’t eat or feed my children’,” he says.

What makes shared owners particularly vulnerable is that, while costs generally decrease over time for homeowners, shared owners will always see their costs rise unless they can afford to take full ownership of their property. This position is made even more precarious by the fact that customers must buy in at the highest share they can manage – with no chance of their bills dropping. For the last three decades at least, the cost of housing has gone up far faster than wage inflation, meaning anyone who purchased, say, a 50 per cent share with the dream of staircasing up to full ownership is likely to have watched that goal rapidly slip away from them.

Sue Phillips, a former shared owner, set up the website Shared Ownership Resources to help buyers to make informed decisions about their housing choices after realising for herself that the shared ownership model had drawbacks that were not always obvious at the point of purchase. She is very worried about where this winter will leave a small but significant cohort of owners.

“The initial affordability assessment [for shared owners] requires that people purchase the maximum part-share they can afford. So people are maxed out in that initial purchase,” she explains. “There’s no financial headroom built in. Many shared ownership households show characteristics of being financially vulnerable, so you’re taking that demographic and exposing them to high, and potentially unaffordable, rises built into the model.”

The smaller the share that owners could afford to purchase in the first place, the higher their exposure to rising costs such as rent and service charge increases. During the cost of living crisis, that means the most financially insecure shared owners are facing the most pressure on their household budgets due to housing costs. However, Phillips believes many are unprepared for how little support there will be from housing associations or the government should they get into financial difficulty in the coming months. Unlike social tenants, housing associations are not obligated to keep shared owners securely housed.

Phillips says: “Many shared owners could be still feeling relatively secure because it’s perceived as a government-backed scheme, delivered by charitable organisations. People say, ‘they wouldn’t let me get into huge hardship’. There’s a lot of trust in this scheme because of the way it’s marketed, so I think consumer protection is really significant. Shared ownership is publicly subsidised as social housing, but in many respects, it’s a market-facing product.”

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Housing policy experts are watching the social housing sector carefully, as it faces particular pressure to support the most financially vulnerable social tenants – many of whom risk slipping into destitution with the rising costs of food, energy and rent. Caps to social rents have been discussed by government who realise the situation is precarious and could prompt an increase in homelessness, particularly for families with children. Government, councils and housing associations will do whatever they can to avoid this situation. But as funding for housing dries up from central government, housing associations with large development programmes are still counting on their shared owners to balance their books.

As Dr Alison Wallace from York University’s Housing Policy Unit puts it, shared owners are a “financial safety valve” for housing associations. “They generate surpluses from them to cost-subsidise rent,” she explains. “The model was to push that into the development of other homes, and that seems to be one of the sole drivers of the expansion of shared ownership that we’ve witnessed. It is a system that disadvantages shared owners. It’s all well and good getting people into home ownership but let’s make sure that has good outcomes for them – and that isn’t always the case.”

That is a hard truth that many shared owners are about to learn. It may also be a time of soul-searching for housing associations. Until now, the only focus on owners has been over affordability at the point of entry to the shared ownership market; there has been little interest in measuring their experience of living as a shared owner. With costs rising, will that change? The signs aren’t encouraging.

In London and the South East, where shared ownership makes up a more significant part of the housing market, there is the danger of reputational damage to housing associations if shared owners fall into poverty, lose their homes or go bankrupt. These organisations have charitable objectives. But even in the capital, the numbers of shared owners compared to social landlords’ vast property portfolios are small enough that any losses could be absorbed without much change to the structure of the so-called “low-cost home ownership” product.

Dr Wallace believes it’s unlikely that the government will want to get involved in supporting this small group of struggling tenants. Her instinct is probably right. The Resolution Foundation, a think-tank dedicated to the experiences of low and middle-income households, has so little data on shared owners that it hasn’t produced any recent work on their housing security. Sophie Hale, the group’s chief economist, says that in the many conversations her team has had with policymakers about rent rises and the cost of living, the plight of shared owners has not featured at all.

Individual housing associations are making their own individual plans about how to deal with their own tenants’ woes. Some will be setting aside funds to help owner-tenants sustain their home by “staircasing down” and reducing the proportion of their home that they own. And while that strategy may prevent them defaulting on a mortgage, it leaves them further exposed to rising rents.

Kate Henderson, chief executive of the National Housing Federation – the trade body that represents housing associations – directly admits that members’ decisions over shared ownership will be directly shaped by government cuts to funding for social housing. A lengthy statement on the matter reveals just how exposed shared owners are.

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“Housing associations, which are not-for-profit organisations dedicated to delivering affordable homes and vital services for residents, are also managing significant financial challenges. The cost of investing in homes and services for residents is increasing rapidly, with construction costs increasing by 12 per cent over the last year and repairs materials increasing by 14 per cent. The government has just consulted on a cap for social rents in 2023. If government decides to impose restrictions on social rents without properly supporting non-profit making housing providers with additional funding, it will be much harder to build new homes and provide services for residents for years to come,” she says.

“Organisations do not want to apply the maximum increases on rents for shared owners, if at all possible. However, the decisions taken on shared ownership rents will be affected by the government’s approach to a social rent ceiling for next year, along with broader economic factors.”

The Independent also approached Optivo and Southern housing associations for comment. Optivo said it had set up a dedicated team to help all residents, including shared owners, facing challenges sparked by the cost of living crisis. The association limited its rent increase for shared owners in 2022-23 and is considering its approach to rent costs next year. “The team has been proactively reaching out to those who we have reason to believe may be financially struggling,” a spokesperson said.

A spokesperson for Southern Housing Group said, “We urge any residents worried about how they will manage their payments to speak with us. We understand that with bills and interest rates set to increase people will be anxious, but we will always work with them to help sustain their tenancies, which is a core principle of the Group.”

Resident campaigners like Timea Szabo are now calling for the government to include shared ownership in its review of the need for a cap on social rent levels. “All these organisations project this view of ‘we want to provide affordable housing’ and none of this applies to us shared owners,” she says.