Shared Ownership: Success or failure?

Alex Beavis
Head of Mortgage Products - Skipton Building Society

A year on from Skipton's entry into the Shared Ownership market, I was asked to reflect on whether I'd class the Society's involvement in the scheme as a "success" (or not). Before I give the answer away to that somewhat loaded question, it's probably best to first reflect more widely about the success of Shared Ownership as a UK housing tenure.

The first misconception about Shared Ownership is that it's new. In fact, Shared Ownership schemes have been around in one form or another for over 35 years. However, despite increasing investment and awareness in recent years, it's estimated that only 0.5% of all existing English housing stock is Shared Ownership (CML Research [PDF]), meaning most people are still relatively unlikely to have come across Shared Ownership in any of its many forms.

In terms of mortgage activity, according to UK Finance Data, in the financial year ending April 2019 there were, on average, 2,105 Shared Ownership mortgages advanced per month. For context, this compares to 3,291 mortgages per month through the much more prominent Help to Buy: Shared Equity scheme and about 100,000 overall mortgage transactions per month across the full market. Shared Ownership, then, accounts for about 2.1% of sales in the regulated mortgage market. A not insignificant slice, but still in many quarters deemed to be a marginal or "niche" segment of lending.

In my mind, there are a couple of key factors behind the Shared Ownership malaise. First, there remains a general and chronic lack of awareness that the scheme even exists. In fact, YouGov national research commissioned by Leeds Building Society last year found that only 40% of 18-24 year olds were aware of the scheme. Of these, 20% admitted to having no further understanding beyond its general existence, while 26% mistakenly thought Shared Ownership involved physically sharing a property with family or friends. Clearly then, Shared Ownership remains in desperate need of a PR offensive and will almost certainly benefit from stepping out of the rather long shadow cast by its bigger brother, Shared Equity, once that particular juggernaut finally grinds to a halt in March 2023.

Next, and linked, is the very concept of 'Help to Buy' itself. The flagship 'Help to Buy' label in fact covers a raft of government initiatives, including more than just the almost eponymous 'Shared Equity' scheme that has come to dominate public awareness, and more importantly, the general understanding of what 'Help to Buy' actually means. In reality, the 'Help to Buy' label is also equally applied to Shared Ownership properties as well as the soon to be withdrawn Help to Buy: ISA savings product and the now defunct Help to Buy: Mortgage Guarantee scheme which closed in December 2016.

This 'Help to buy' multiplicity causes issues on two fronts. Firstly, it's hardly surprising that awareness and understanding of Shared Ownership is so low when both Shared Equity and Shared Ownership schemes are badged with the same 'Help to Buy' label, despite their fundamental differences.

The second issue lies in the adoption of the schemes by major housebuilders. With the Shared Equity scheme providing both first and next time buyers access to larger deposits and therefore more affordable mortgage rates, housebuilders have taken full advantage of the 'bigger, better, sooner' side-effects of the scheme to stimulate demand for larger, higher margin new build family homes. Shared Ownership homes, which are typically smaller, are most likely to be flats or apartments and most certainly lower margin properties. These have been generally consigned to Section 106, 'affordable home' properties, built by developers in order to attain planning on new build sites.

My view, and one recently backed up by Savills, is that the end of the Shared Equity scheme in 2023 should spell good news for Shared Ownership. In fact, Savills estimate that demand for Shared Ownership could be set to rise by over 15,000 homes per year, more than twice the number currently being built. Supporting this increase in demand is the fact that Shared Ownership is actually more accessible than Shared Equity, with smaller deposits and more affordable mortgage payments, as well as availability on both new and second hand property.

Outside of publically funded initiatives and in direct contrast to Shared Equity schemes, Shared Ownership is also much more readily supported by the private sector, with both pension and hedge funds more likely to invest capital in Shared Ownership structures and their inflation-linked rental income than the longer term capital growth gamble of shared equity schemes. Rather than viewing the two as competing forces, a mix of private and public Shared Ownership provision should have a symbiotic effect on the overall health of the scheme with awareness and therefore, demand for the product more likely to blossom.

Returning then to the original question, which asked whether Skipton’s own participation in Shared Ownership has been a success, my own and clearly biased answer, despite all the above, has to be a resounding ‘yes’. However, this ‘yes’ rests not on the traditional benchmarks of volume, margin, return on capital or even industry awards, but from a more philosophical viewpoint.

Clearly, all parties involved seek a financial return from Shared Ownership. And yet, every new lender, builder or housing provider choosing to participate in this market is a small step forwards in addressing the wider macro issues in our housing market. For Shared Ownership, perhaps more than any other scheme or initiative, best targets those requiring support by providing a much needed bridge between the private rented sector and the security of mortgaged home ownership. In my eyes, any step forwards in supporting the next generation of homeowners, however small, is something to be celebrated and encouraged.