1. Shared Ownership

Homes England's requirements for grant funded Shared Ownership homes provided through the Shared Ownership and Affordable Homes Programme (SOAHP) 2016 to 2021 Affordable Homes Programme (AHP) 2021 to 2026 programmes.

1. Overview

Whilst some of this guidance applies to both programmes, the new Shared Ownership model introduced for the AHP 2021 to 2026 does contain some changes and differences from the SOAHP 2016 to 2021. Where there are differences these are highlighted in this guidance as appropriate.

The Government has published its New model for Shared Ownership technical consultation response to the changes to the Shared Ownership model from 1st April 2021.

The major changes proposed to the Shared Ownership model from 1 April 2021 relate to the following:

• the minimum initial share that can be purchased reducing from 25% to 10%
• the introduction of the option of staircasing in 1% increments for the first 15 years; larger shares can still be purchased with the minimum reducing from 10% to 5%
• the introduction of a 10-year period during which the costs of any maintenance or repairs will be met by the landlord rather than the shared owner
• the option for the shared owner to end the nomination period at the four week point if they wish to pursue a sale on the open market rather than the previous eight week period

Note that the new Shared Ownership model applies to all Shared Ownership homes delivered through Homes England’s AHP 2021 to 2026, including Home Ownership for people with long-term disabilities (HOLD), Older Persons Shared Ownership (OPSO), homes in rural protected areas and homes purchased through the Right to Shared Ownership.

The new model also applies to new Shared Ownership homes funded from 1 April 2021 using receipts from the Voluntary Right to Buy programme.

This chapter also includes Homes England’s standard model leases that are recommended for use and which include the fundamental clauses which are a requirement. Please ensure that the appropriate lease(s) is used for the programme under which the Shared Ownership homes are being delivered.

Note that this guidance only applies to Shared Ownership homes provided in England, but outside of London. Shared Ownership homes provided within London fall under the remit of the Greater London Authority who provide their own guidance for the provision of affordable housing within London.

1.1 Purpose

1.1.1 Help to Buy: Shared Ownership homes were provided as part of the SOAHP 2016 to 2021. Shared Ownership homes provided through the AHP 2021 to 2026 do not fall under the Help to Buy branding and are just referred to as ‘Shared Ownership’. This chapter sets out Homes England’s guidance and requirements that apply to grant funded Shared Ownership schemes provided under both of these programmes.

1.1.2 Sales through Social HomeBuy and the Right to Acquire, together with their associated funding criteria, are separately covered in their own chapters of the Capital Funding Guide (CFG). Please note that Shared Ownership does not include rented property sold on Shared Ownership terms, such as Social HomeBuy.

1.2 Context

1.2.1 Shared Ownership covers all homes developed through one of Homes England’s affordable homes programmes (as above) for sale on Shared Ownership terms from January 2016. In addition to standard Shared Ownership, it includes properties developed in or for:

• rural locations
• Designated Protected Areas
• older persons
• people with long-term disabilities

Funding for self builders is also included. For further details on all of these options, please see the relevant entries below.

1.2.2 Following a consultation in 2015, the standard model lease was updated to remove the requirement for leaseholders who have staircased to 100% or their assignees (former shared owners) to offer their former Shared Ownership homes back to the originating landlord prior to sale on the open market within the first 21 years following the final staircasing event (the post final staircasing right of pre-emption). Where former or current shared owners have this right of pre-emption contained either within their existing form of lease or registered against their freehold title, this guidance makes clear that this should be removed from the lease or title to the property. Further detail of this is contained below in Section 5.3.26.

1.2.3 In circumstances where a shared owner has not staircased to 100% and wishes to sell, the obligation to offer their home back to their landlord (either for them to put forward a nominee purchaser or take a surrender of the lease) remains in place and must be complied with before they may offer a home on the open market. This is the pre-final staircasing right of pre-emption and is commonly referred to as the nomination period, right of first refusal or first option to buy. Note that the time period of this right has been reduced for homes delivered through the AHP 2021 to 2026 from eight weeks to four weeks.

1.2.4 Schemes given grant confirmation before 1st April 2011 must follow procedures as set out in previous versions of the CFG. Where a scheme has been converted to Shared Ownership as part of a programme of conversions agreed as part of an AHP delivery contract, the procedures in the current CFG should be followed irrespective of when the scheme originally received grant confirmation.

1.2.5 Registered Providers may also offer Affordable Rent properties to the existing tenants on Shared Ownership terms at the end of their tenancy. There are some differences – in particular with regard to notifications to Homes England and customer eligibility.

Further guidance

In some cases an applicant offered a property on Affordable Rent terms has the option to purchase that property on Shared Ownership terms at the end of, or during, their tenancy.

Registered Providers must notify Homes England of such sales, which will be administered in the same way as voluntary sales on Shared Ownership terms – please see Grant Recovery section 3.4.

Properties must be sold on usual Shared Ownership terms, following the requirements and guidance contained within this chapter. The only variations to this guidance are as follows:

• A tenancy in an Affordable Rent property will, in most cases, confirm the first stage of a tenant’s eligibility for such a purchase.
• Providers must ensure that the other eligibility criteria are met. In particular, providers must ensure that applicants can afford the purchase and sustain the costs of home ownership.

In such cases the sales receipt, including the appropriate proportion of Homes England funding, will be expected to be reinvested in the further new supply of Shared Ownership homes.

When disposing of Affordable Rent properties providers are reminded that they will be subject to Homes England’s requirements on notifications of disposal and our requirements on grant recovery as per chapters 7 and 8 of this guide.

1.2.6 Classifications of sale schemes

Shared Ownership may be provided using the following scheme types:

• New build including Acquisition & Works, Off the Shelf (does not include the purchase of a single property) and Works Only schemes
• Rehabilitation including Acquisition & Works, Existing Satisfactory*, Purchase and Repair and Works Only schemes

*only applies where a property is to be provided through Home Ownership for people with long-term disabilities (HOLD - please see 1.3.8 below).

1.3 Main features of the schemes

1.3.1 Although there are differences between Shared Ownership homes provided through the SOAHP 2016 to 2021 and AHP 2021 to 2026 programmes the fundamental principles are the same. Under both programmes the homes are provided using the appropriate standard model Shared Ownership lease (please see section 5 and section 11). The buyer pays a percentage share of the market value of the property and enters into a lease agreement with the landlord. As they have paid for part of the value of the property, they then pay rent on the percentage share they have not paid for. The term ‘Shared Ownership’ has a legal meaning and is used in this context.

How Shared Ownership works

Purchasers of Shared Ownership leases provided through the SOAHP 2016 to 2021 are allowed to buy an initial share of not less than 25% and not more than 75% based on a percentage of the full market value of the property.

For Shared Ownership homes provided through the AHP 2021 to 2026 the minimum share that purchasers can purchase has been reduced to 10%. Note that it is at the discretion of Shared Ownership providers as to whether they choose to offer the new Shared Ownership product introduced for the AHP 2021 to 2026 on homes provided through the SOAHP 2016 to 2021 and which will complete and be sold after 1 April 2021. Where providers choose to do this then they must offer all of the provisions of the new Shared Ownership model. Providers cannot choose to offer just some of the provisions and not others.

Step 1

The shared owner raises the funds to purchase their share in the normal manner. For example, through some savings and / or possibly some family assistance, but primarily by taking out a mortgage from a bank or building society. Note it is not an absolute requirement that a purchaser must fund the acquisition with a mortgage, but it is the usual route to purchase. Where an applicant does not intend to raise a mortgage to make the purchase (a ‘cash purchaser’), they must be able to demonstrate that they have the means to afford and sustain home ownership in the longer term.

Step 2

The provider then grants a leasehold interest to the shared owner. The shared owner occupies the entire dwelling and pays a rent to the provider for the share of the property still owned by the provider.

Step 3

The rent level is set by the provider. The annual rent at initial sale must be no more than 3% of the value of the home in the ownership of the provider.

Example

Property value at initial sale: £200,000
Equity share paid for at initial sale: 30%
Payment to provider at initial sale: £60,000 (£200,000 x 30%)
Equity share not paid for at initial sale: 70%
Value of share not paid for at initial sale: £140,000 (£200,000 x 70%)
Maximum annual rent: £4,200 (£140,000 x 3%)
Maximum rental payment: £350 per month or £81 per week

For Shared Ownership homes provided through programmes preceding the AHP 2021 to 2026, the leaseholder is liable for all maintenance costs on the property even if they only have purchased the minimum 25% equity share. For homes provided through the AHP 2021 to 2026 the landlord will meet the cost of repairs and maintenance for the first 10 years from the point of initial sale (with some limits).

Step 4

Over time, the leaseholder can purchase further shares in the property. In most cases they can purchase up to 100% of the equity in the property, thereby becoming the outright owner. This is a process known as ‘staircasing’ and is a fundamental clause of the grant funded Shared Ownership lease which guarantees the right of the shared owner to acquire 100% of the equity share.

The only exceptions to this are specific types of Shared Ownership in which the lease is subject to staircasing restrictions such as in designated rural areas and for Older Persons Shared Ownership (OPSO). Please see section 1.4 below for details.

Example

Property value at initial sale: £200,000
Equity share purchased at initial sale: 30%
Provider’s share at initial sale: 70%
Payment to provider at initial sale: £60,000

3 years later:

Property value at point of staircasing request: £240,000
Additional equity share purchased through staircasing: 10%
Payment to provider for 10% staircasing: £24,000

As the leaseholder purchases greater shares in the property, their rent falls according to the proportion of unsold equity. Where the shared owner has become the outright owner of a house, the provider transfers the freehold of the property (where applicable) to the new owner. Where the leaseholder becomes the outright owner of a flat, the provider retains the freehold of the block of flats.

1.3.2 Shared Ownership is aimed at helping people in housing need who are unable to afford to purchase a suitable property for their needs on the open market. Applicants are subject to various eligibility and affordability requirements.

It is anticipated that most eligible applicants purchasing under a Shared Ownership home will purchase a share in a property through a combination of the following:

• Savings (if any)
• A mortgage obtained through a qualifying lending institution (see the Glossary for a definition)

Note that it is not a requirement to purchase through the above route. Shared Ownership applicants can be ‘cash purchasers’ and not require a mortgage, though providers will need to ensure that any such purchase is affordable for the applicant, as well as them meeting the normal eligibility requirements for Shared Ownership.

1.3.3 The following variations are also permitted under the Shared Ownership product and may be provided using grant:

• Home Ownership for people with Long-term Disabilities (HOLD)
• Rural schemes
• Designated Protected Area schemes (part of the rural programme framework) (from 7 September 2009)
• Older Persons Shared Ownership (OPSO)
• Self build

For further details on these options, please see relevant entries below.

1.3.4 The minimum initial equity share that can be purchased for homes provided through the AHP 2021 to 2026 is 10% and the maximum initial equity share is 75%. For homes provided through the SOAHP 2016 to 2021 the minimum equity share that can be purchased is 25%, though providers can offer the lower share where homes complete under this programme after 1 April 2021.

Under both programmes further shares can be purchased (‘staircasing’) at a later date though some restrictions might apply (see section 7.2). Providers should not fix the share of a given property to be sold in advance but should offer buyers a size of share appropriate to their individual circumstances. It is acknowledged that providers may need to offer a range of shares across a Shared Ownership development for the purposes of meeting the economic viability of a development, however this should not exclude those only able to afford lower shares.

1.3.5 Shared Ownership purchasers are encouraged to buy the maximum share they can afford from the outset. However, the various costs involved in purchasing and the costs of moving should be taken into account. This will depend on individual circumstances and there may be legitimate reasons why some purchasers should be allowed to retain a higher level of savings than others. For example, to meet future health and care costs or other financial commitments.

1.3.6 Shared Ownership providers are ultimately responsible for assessing and confirming the eligibility of applicants. They must ensure that a further rigorous financial assessment is carried out taking into account savings, access to capital or any other assets, and outgoings, to assess the affordability of the purchase. For further guidance please see section 3 (applicant eligibility) and section 6 (affordability guidance).

1.3.7 A self build option can allow some of the equity acquired by the shared owner to be based on the self builder’s notional labour cost during the construction period. For details on self build, please see section 1.5 below and the Glossary.

1.3.8 All sales must allow the shared owner to buy further shares (‘staircase’) and buy the property outright, with the following exceptions:

• Older Persons Shared Ownership
• Schemes funded in rural exception sites where the provider has chosen to restrict staircasing
• Schemes in Designated Protected Areas where the provider has opted to restrict staircasing.

1.3.9 Initial Repair Period – AHP 2021 to 2026 only

1.3.9.1 For homes funded using AHP 2021 to 2026, the shared owner will receive support from their landlord to pay for essential repairs for 10 years from the lease start date. For more details, please see the policy overview for the new Shared Ownership model

1.3.9.2 You can find more details about the initial repair period in the following:

• Schedule 6 of the model house lease and Schedule 9 of the model flat lease - see AHP 2021 to 2026 model leases
• the Key Information Documents for houses and flats

1.4 Variant forms of Shared Ownership

1.4.1 Home Ownership for people with a long-term disability (HOLD)

HOLD is a variant form of Shared Ownership. which operates in the same way as the Shared Ownership model. It is designed to assist people with a long-term disability to purchase a on the open market which is suitable for their needs. This can be offered where suitable properties are not being offered for Shared Ownership more generally near to where they need to live to provide access to their necessary support services and networks. Although HOLD is normally for the purchase of second-hand homes on the open market it is possible to purchase a newly built home. For further guidance please see below.

A long-term disability is not defined by Homes England for the purposes of Shared Ownership but this would include people with learning difficulties. We would refer providers to the definition provided within the Equality Act 2010.

Example of a situation where HOLD may be appropriate

Someone with a long-term disability may have a need for a single ground floor property whereas only two storey properties are being developed for Shared Ownership assistance. Or there may not be Shared Ownership within a reasonable distance of necessary support networks.

In such instances a provider would arrange to purchase a suitable property being offered for sale on the open market, and then sell the property to the applicant on standard Shared Ownership terms.

Applicants should be able to demonstrate they can afford the purchase. Providers should not prohibit applicants who are relying on Support for Mortgage Interest (SMI) payments or other payments relating to their disability providing that affordability can be demonstrated.

1.4.2 There are no additional HOLD applicant eligibility criteria and people with long term or other disabilities would normally be expected to apply for Shared Ownership, where providers are developing properties that meet their individual needs.

1.4.3 HOLD is not available as a right for Shared Ownership applicants and the participation of providers to make HOLD available is entirely at their discretion taking into account their business and housing management requirements.

1.4.4 It is expected that providers assisting purchasers via HOLD will have experience of working with people who have a long-term disability. As HOLD supports individual property purchases, and not scheme development, it is not recommended that providers seek an allocation of grant funding in advance from Homes England to offer HOLD, other than in exceptional circumstances where providers have a history and track record of HOLD provision in significant numbers. Instead, providers should approach Homes England for funding as and when required. When progressing a HOLD allocation, providers must manage purchasers’ expectations as funding will be dependent on an individual case by case assessment and budget availability.

1.4.5 HOLD will comply with all the requirements elsewhere in the programme and Homes England’s model Shared Ownership lease requirements such as fundamental clauses, initial rent, and staircasing opportunities.

A notable exception, however, for HOLD homes delivered through the AHP 2021 to 2026 is that, where second hand homes are purchased on the open market, they will not be eligible for the full 10-year repairs and maintenance free period available for newly built Shared Ownership homes. The 10-year repair period will be reduced accordingly to take account of the age of the property.

For example, a home which was built 4 years ago would have a repairs period of 6 years.

However, the provider in such cases has an opportunity to offer an optional repairs and maintenance service paid for by the leaseholder.

This can be included in the lease but there is no requirement for such an optional service to be part of the fundamental clauses to be included in the lease (please see section 5.6.5 below).

HOLD schemes are usually older homes purchased on the open market on a Shared Ownership basis. They will qualify for the 10-year repair support period but only if they are purchased during the first 10 years of the property being built where they will be covered for what remains of that 10-year period.

In the absence of other evidence, the date of build completion will be evidenced by the date of issue of the Building Regulations Completion Certificate or Final Certificate. However, the expectation is that where there is other documentary evidence to indicate that the actual build completion was a later date - for example, a later practical completion certificate issued by the developer or a warranty document with a more recent build completion date - providers should act reasonably to ensure that the 10-year repair period is not artificially reduced.

Where a HOLD property is more than 10 years old at the point of granting the HOLD lease, references to the Initial Repair Period, Initial Repair Period End Date and the associated schedule / clauses should be removed from the lease to avoid confusion.

1.4.6 The lease for the HOLD variation of Shared Ownership should use the standard model lease for the appropriate programme. The only variation is the start date for the Initial Repair period (as per 1.4.5). See section 11.2 for more information on model leases.

1.4.7 Property criteria

The home selected for purchase must be in England, but outside of London, and meet the following criteria. Shared Ownership properties in London fall under the remit of the Greater London Authority (GLA).

• The size of the home must be suitable for the applicant’s current housing needs as determined by the provider.
• The home selected must have a wholly residential use. A home where the planning use is part commercial is not eligible. This would not exclude homes where the applicant would be working from home (to carry out clerical work for example).

Example

A flat over a shop would be eligible, provided that the flats are self-contained and wholly residential and the access to the flat is appropriate for the purchaser’s requirements.

1.4.8 The home selected must be bought with vacant possession with the following conditions:

• Be immediately habitable or
• Be a new home under construction, provided
  • the property does not benefit from any other form of public subsidy
  • the property is available freehold or has a lease length of at least 125 years if funded through the AHP 2021 to 2026 (99 years for homes funded under the SOAHP 2016 to 2021) as well as meeting the lender’s requirements (see paragraphs 5.3.4.1 and 5.3.4.2 for more detail on lease length)
  • whilst the minimum lease term for HOLD under the AHP 2021 to 2026 is 125 years, providers must seek the longest lease term available and should aim to provide a 990 year term wherever possible. In cases where the lease length is below 990 years, providers should fully explain the implications of a shorter lease to the customer and highlight the potential costs of a lease extension
• The home selected must be acceptable to the HOLD provider and for mortgage loan purposes, and be in a reasonable state of repair as evidenced by a homebuyer’s survey and valuation or equivalent
• A new build property must be covered by either a guarantee or similar warranty product provided by a reputable organisation as agreed by the HOLD provider. An architect’s certificate or any other professional consultant’s certificate is not acceptable.
• A second hand open market leasehold property must provide the HOLD provider with a sufficient length of term (i.e. a leasehold interest of a minimum of 125 years) as well as meet the conventional mortgage lender’s requirements. For houses, it is a requirement that the freehold is purchased with some limited exceptions (as set out in the Finance chapter, section 3.1). A lease term of shorter than 990 years is only permissible where no suitable alternative home with a longer lease is available.

1.4.9 The provider may reject a home for HOLD that it considers to be in a poor condition, based on the information provided in the survey or by the vendor. Where the vendor has agreed to carry out works before completion, the provider may approve the home on condition that the works are completed to a satisfactory standard prior to purchase.

1.4.10 Excluded properties

The following type of property cannot be purchased through the HOLD option:

• A commercial property
• A home on sale at auction
• A mobile home (including fixed homes covered by the Mobile Homes Act 1983), caravan or houseboat
• A home offered at a discount or on Shared Ownership terms by a provider or local authority or other public body. This includes properties sold with a discount funded through a section 106 agreement, except where the property has been privately funded and no other public subsidy has been used. This is a temporary measure only and is intended to help to minimise the hardship experienced by home buyers. Homes England will keep this under ongoing review
• A plot of land on which to build
• A home which is to be built by the applicant or a self-build group
• A property occupied by sitting tenants

1.4.11 HOLD and supporting people

Providers participating in the provision of the HOLD variant of Shared Ownership must be familiar with relevant local strategic priorities and services for people with long term disabilities and ensure that the purchasers are aware of and supported, if required, by appropriate local arrangements. For example, Supporting People services which the relevant local authority has in place.

1.4.12 Older Persons Shared Ownership

Older Persons Shared Ownership (OPSO) operates on the same Shared Ownership principles as the SOAHP 2016 to 2021 and AHP 2021 to 2026 programmes but with some differences as follows:

• It is only available for people aged 55 or over
• The maximum level of equity that can be purchased is 75%
• When the maximum level of equity has been purchased the leaseholder does not have to pay rent on the remaining 25% share of the property

Please see below for additional guidance as well as section 5.5.

OPSO is exempt from Designated Protected Area legislation requiring Shared Ownership leases in protected areas to allow leaseholders to staircase to at least 80%.

1.4.13 The eligibility criteria for standard Shared Ownership should be met, including that the purchaser is unable to purchase a suitable home on the open market. For more information on how this should be assessed, see section 6 (affordability guidance).

1.4.14 Providers must not consider any sale to a person younger than 55. The Housing Ombudsman Service has ruled that sales to someone not meeting the age restriction could be a breach of the terms of the lease.

1.4.15 Restricted staircasing on Rural Exception Sites

This is applicable to rural exception sites only and allows providers to restrict the limit on staircasing on grant funded Shared Ownership property in these areas to a maximum of 80% of the value of the property. The shared owner will continue to pay rent on the remaining 20% of the property.

1.4.16 Rural restricted staircasing may be used in conjunction with the rural repurchase option (see section 8).

1.4.17 Providers will need to take their own legal advice as to the appropriateness of the restricted staircasing option but should be aware that a limited range of mortgage products may be available to prospective purchasers as a result of its use.

1.4.18 Designated Protected Areas

Designated Protected Areas are as detailed in the Housing (Right to Enfranchisement (Designated Protected Areas) (England) Order 2009 (Statutory Instrument 2009/2098). These are settlements also currently designated as being exempt from the Right to Acquire (i.e. with a population of less than 3,000). Locations currently covered by the above order may be subject to review in due course by the Department for Levelling Up, Housing and Communities. The maps referred to in the regulations are available in electronic format at DPA maps.

1.4.19 Due to a previous anomaly in the law (Statutory Instrument 1987/1940) relating to leasehold enfranchisement and Shared Ownership leases of houses, the Housing (Shared Ownership Leases (Exclusion from Leasehold Reform Act 1967) (England) Regulations 2009 (Statutory Instrument 2009/2097) were enacted with effect from 7 September 2009. The regulations set out criteria that a Shared Ownership lease must fulfil that, where a tenant cannot acquire 100% of the property, they cannot exercise their right to enfranchise under the Leasehold Reform Act 1967.

Before the enactment of these regulations, restricting staircasing carried the risk of “early” enfranchisement, i.e. that the shared owners of houses could purchase the freehold under rights in the Leasehold Reform Act 1967 before they owned 100% of their home. This is because under that legislation providers were only protected from the risk of early enfranchisement if their Shared Ownership leases allowed purchasers to eventually staircase to 100%.

If staircasing was restricted as a means of retaining Shared Ownership properties as affordable, providers would not be protected under the legislation and would be at risk of early enfranchisement. It was possible in some circumstances for providers to rely on “the low rent test” to avoid early enfranchisement but this is an old mechanism which has gradually been phased out and around which there is some confusion.

This was a risk for Shared Ownership houses only, not flats, since under current legislation the tenant’s share of a Shared Ownership lease of a flat must be 100% before the lease is regarded as a long lease for the purpose of deciding whether or not the tenant has the right to join together with other tenants to buy the freehold of the property containing their flats (collective enfranchisement).

1.4.20. Homes England’s Designated Protected Area policy is designed to maintain the availability of grant funded Shared Ownership properties within these areas. Although the regulations only apply to houses (for the reasons set out above), it is our policy that it will apply the requirements for retention in the legislation to grant funded Shared Ownership schemes for both flats and houses developed in Designated Protected Areas.

1.4.21. We have included the requirement to retain flats in our Designated Protected Areas policy for the following reasons:

• It will assist the with retention of all new Shared Ownership homes in Designated Protected Areas
• It will put leaseholders in flats on a similar footing to leaseholders in houses

1.4.22 The legislation aims to ensure that grant funded Shared Ownership homes in difficult to replace areas can be retained for the benefit of local people.

1.4.23 A key aspect of the Designated Protected Areas regulations is that Shared Ownership leases issued in respect of houses in Designated Protected Areas must contain certain clauses to benefit from the statutory exemption from enfranchisement and to retain the property as Shared Ownership for future purchasers.

Shared ownership leases in Designated Protected Areas must include a requirement either:

• to restrict staircasing to a maximum of 80% or
• where the lease allows staircasing to exceed 80%, for the leaseholder to sell their share back to the landlord when they wish to sell the property

1.4.24 Note that where staircasing is restricted to 80% rent is still payable on the remaining 20% not owned. Landlords will need to take their own legal advice as to the appropriateness of the above options, and which one to use. Landlords should be aware of the potentially limited range of financial products which may be available from lenders to prospective purchasers should they restrict staircasing to 80%.

1.4.25 Further information concerning repurchase:

Designated Protected Area leasehold repurchase

This variant is still Shared Ownership, except that the provisions only apply when the leaseholder staircases to beyond 80% and wishes to sell on. It enables providers to fulfil the legislative requirements and repurchase the property from the (former) shared owner (at full market value) in order to resell it on a Shared Ownership basis to another local person in housing need.

Where providers have robustly explored and exhausted all other funding options, including the use of Recycled Capital Grant Fund (RCGF) or a transfer of RCGF, Homes England will positively consider applications to fund the repurchase of grant funded property within a Designated Protected Area, where funding is available.

1.4.26. From 1 April 2011, if a local authority considers a development that is situated within a Designated Protected Area does not need to be protected in order to retain properties as Shared Ownership for future purchasers, then they can apply to Homes England for a waiver of Designated Protected Area grant conditions on a site specific basis. See further guidance and the waiver form. If providers consider that the nature of their proposed development does not require protection, they should approach the local authority in the first instance, which, if in agreement, may then approach Homes England.

1.4.27. Where cases are supported by the local authority and a waiver of Designated Protected Area grant conditions is approved by one of our Affordable Housing Growth Teams, providers can develop properties for sale as Shared Ownership without the requirement to include one of the two Designated Protected Area lease clauses set out at 1.4.23 above.

1.4.28. For further information on Designated Protected Area lease requirements see section 5.4.3 of this guide.

1.4.29. For further information on additional grant eligibility requirements for Designated Protected Area schemes see section 9 of this guide.

1.5. Self-build Shared Ownership

1.5.1 This follows all the principles of Shared Ownership outlined in the above sections, except in respect of the manner in which the homes are constructed.

Where self-build Shared Ownership is offered, potential shared owners can reduce the cost of developing the properties by contributing some of the construction labour themselves. This contribution to the development costs by the self-builder is recognised by the vendor who assigns a share in the equity of property to the self-builder equivalent to the value of the labour which the self-builder provided during the construction process.

1.5.2 Please note that ‘self-build’ in this context is different from the ‘Self-Build’ product that was previously funded by the Housing Corporation and developed for outright sale by a mutual co-operative Self-Build Group. Please see the Glossary chapter for details of the distinction between the two.

1.5.3. Self-build schemes developed for Shared Ownership must be financially viable and must look to demonstrate a maximum scheme cost / value relationship of 80%. That is the costs of the scheme must be at least 20% less than the value of the completed homes. Any schemes that fall short of this criterion will be subject to technical assessment by Homes England.

1.5.4. Providers must also ensure that:

• the self-build group is registered with the Registrar of Friendly Societies on National Housing Federation model rules
• the self-build group works with a provider which can claim grant
• the provider signs an appropriate Development Agreement with the self-build group
• the rules and working regulations of the self-build group provide adequate management structures and procedures for the provider

2. Funding principles

2.1 General

2.1.1 The total Homes England funding (new grant and any Recycled Capital Grant Fund) eligible for a Shared Ownership scheme should be the minimum necessary to bring the scheme forward. It is set out in a provider’s original funding allocation as agreed by Homes England. Where there are changes to the number or cost of the homes to be provided, or where delivery is otherwise altered from the original allocation, any potential changes to grant requirements will be addressed through Homes England’s contract management process.

2.2 Financial viability

2.2.1 It is expected that the proposed initial sale and rent income will have been considered and that, in the long term, operational costs including the repayment of the loan’s principal and interest can be met. Any initial revenue deficits must be met within a provider’s overall financial capacity. The Regulator of Social Housing will regularly monitor the impact of the costs of development on a Registered Provider’s general financial status.

2.3 Sales valuations

2.3.1 Providers must obtain valuations from a Royal Institution of Chartered Surveyors (RICS) qualified and registered valuer at the point of initial sale of a Shared Ownership home. The valuation must be carried out by an external valuer as defined in the RICS Red Book to ensure that the RICS valuer commissioned is an individual or organisation separate from the grant recipient.

2.3.2 Initial sales must be based on the full market value of the property which shall be assessed as the price the leasehold interest in the property would fetch if sold on the open market by a willing seller, upon the terms and conditions contained in the Shared Ownership lease and on the assumption that the leaseholder would acquire a 100% interest in the lease.

2.3.3 For subsequent staircasing transactions, the provider shall follow the valuation requirements in Schedule 6 (Staircasing Provisions) of the model form of flat lease or Schedule 5 (Staircasing Provisions) of the model form of house lease. Note the requirement for an independent RICS valuation only applies where the staircasing request is for a minimum of 5% on homes provided through the AHP 2021 to 2026, or the minimum 10% staircasing for homes provided through previous programmes.

The valuation for the 1% staircasing option (for homes provided through the AHP 2021 to 2026) is based on the Land Registry’s House Price Index. However, the option for a RICS valuation is available to both the shared owner and provider if the valuation arising from the Land Registry’s House Price Index methodology is disputed.

The following additional conditions apply to staircasing valuations:

• The shared owner’s improvements and failure of the shared owner to keep the property in good repair are to be disregarded *
• Any service charges or improvement contributions payable will not be less than the estimates contained in the landlord’s offer (if such an offer was made)
• For freehold property, the landlord is selling a freehold interest with vacant possession
• For leasehold property, the landlord is selling with vacant possession for the applicable lease term, or a term expiring five days before the term of the landlord’s lease is to expire

Classification of improvements and repairs

Homes England anticipates an improvement being something that might add to a property’s value rather than something that is being replaced or repaired. The staircasing valuation should therefore be based on the market value had the improvement not been undertaken.

If the shared owner has not kept the property in good order, as is required by the Shared Ownership lease, the staircasing valuation should be based on the market value as if it had been.

Therefore a current market valuation may need to be adjusted upwards or downwards depending on any act or omission committed by the shared owner.

2.3.4 Where, in exceptional circumstances, providers set sale prices above the valuation, they must:

• seek the approval of their Homes England Contract Manager before proceeding, providing a robust business case for selling above the valuation
• document the reasons and keep a record on file for audit purposes
• satisfy themselves the price remains within the means of potential purchasers

2.3.5 If, in exceptional circumstances, providers wish to reduce prices below the valuation, they must:

• have the prior agreement of their Homes England Contract Manager (agreement will not be given where the discounted price is below the cost of providing the homes)
• demonstrate how discounts will benefit subsequent purchasers (for example, reductions in the initial rent will provide a longer term benefit to purchasers and enhance affordability)

2.3.6 Validity period for a valuation

Where no validity period is given for the valuation it will be assumed that the independent RICS valuation is valid for 3 months. When an offer is made on a property by an applicant, the valuation current at the time of the offer will be assumed valid for 3 months from the date of the offer.

2.3.7 If the valuation period expires and a further valuation is required then this should follow the guidance and principles established by RICS. This includes the ability to provide an updated valuation via a desktop assessment rather than a full valuation, thereby minimising any potential costs. This applies to resales and new homes.

2.4 Rents and service charges

2.4.1 Providers are required to provide rents and service charge information for Shared Ownership homes and must keep details of rents, including service charges, on file for Compliance Audit purposes. Rents for Shared Ownership homes are not subject to the Regulator of Social Housing’s Rent Standards and Rent Influencing Regime. For more detailed requirements see section 4.

2.4.2 Providers are expected to propose levels of rents that are considered affordable to potential purchasers.

2.4.3 A provider’s proposed rent as a percentage of unsold equity is set as part of the initial allocation of funding from Homes England. Providers are then required to maintain the same percentage through to completion and initial sale of the Shared Ownership homes.

2.5 Notifications to the Regulator of Social Housing

2.5.1 Registered Providers do not need to notify the Regulator of Social Housing when issuing Shared Ownership leases that cannot be classed as assured tenancies (for example, because of low rent).

2.6 Grant

2.6.1 Providers may use grant and their Recycled Capital Grant Fund (RCGF) for Shared Ownership schemes, on condition that the scheme is consistent with the RCGF permitted uses - see the Grant Recovery chapter, section 6.

2.6.2 Providers may combine new funding and RCGF in one scheme (on condition that the scheme is consistent with the permitted uses of all forms of grant), but must declare the total amount of grant to be used as part of the bid for funding. Providers cannot add additional RCGF to contribute towards the costs of the scheme after the initial agreed allocation without prior approval from Homes England.

2.6.3 For details of how to claim grant and payment arrangements see the Finance chapter, section 3.

2.7 Builders’ warranties

2.7.1 Providers must ensure that housebuilder warranties suitable for mortgage purposes, together with the accompanying ‘cover note’ as required under the UK Finance initiative, are available upon the completion of homes.

2.8 Conversions of unsold Shared Ownership homes

2.8.1 It is expected that providers will conduct their own market research before bidding for grant and make development decisions based on expectations of sales. However, Homes England appreciates that local demand may change and leave providers unable to sell their Shared Ownership homes.

2.8.2 In such circumstances we will consider a permanent or temporary change of use to Rent to Buy. In exceptional circumstances only, requests to convert Shared Ownership homes to Affordable or Social Rent may be considered.

2.8.3 As a minimum, we expect that Shared Ownership homes will have been marketed for 6 months before considering requests to approve conversions. Providers should make a business case to their Homes England Contract Manager which provides details on:

• how long the property has been marketed for
• what actions have been taken to find a suitable purchaser
• why these have not been successful
• what local authority support exists for the proposed new tenure

2.8.4 Providers should note that a change of use is a relevant event (relevant event ‘j’) for the recycling of grant and can be permanent or temporary. Please refer to the Grant Recovery for RPs chapter (section 3.4.1) or the Grant Recovery for Unregistered Bodies chapter (section 3.4.8) for more details.

3. Applicant eligibility

3.1 General

3.1.1 Shared Ownership aims to help people that are in housing need.

3.1.2 In order to be eligible to purchase a Shared Ownership home applicants must have a gross household income of less than £80,000 and be otherwise unable to purchase a suitable property for their housing needs on the open market.

3.1.3 Shared Ownership homes are available for existing outright or shared owners. Please see section 3.5 below for further details.

3.1.4 Providers are required to conduct their own assessment of individual applicants to:

• ensure that they meet all eligibility criteria
• assess what share they can afford
• ensure that their purchase is affordable and sustainable

The assessment as to what share purchase an applicant can afford must be undertaken by a suitably qualified, experienced and regulated mortgage advisor or financial advisor. 

3.1.5 Where there are long delays between initial application and exchange of contracts, providers must ensure that applicants continue to meet the eligibility criteria, as their circumstances may have changed (for example, an applicant may have changed jobs or formed a new partnership).

3.2 Applicant Priority

3.2.1 In 2016, the Government removed all priority groups for assistance, where there is an under-supply of Shared Ownership homes. Homes should be available on a first come, first served basis to Shared Ownership applicants providing that they meet the relevant eligibility and affordability criteria.

3.2.2 The exception to this is for qualifying Armed Forces personnel and in certain rural locations and sites.  Such exceptions where there is an undersupply can be summarised as follows with more detail on each following.

• serving military personnel and former members of the British Armed Forces discharged in the last two years
• National Parks, Areas of Outstanding Natural Beauty and rural exception sites

3.2.3 Eligibility requirements for military personnel

3.2.3.1 Ministry of Defence personnel will be prioritised for Shared Ownership schemes where:

• they have completed their basic (phase 1) training and they are one of the following:
  • Regular service personnel (including Navy, Army and Air Force)
  • Clinical staff (with the exception of doctors and dentists)
  • Ministry of Defence Police Officers
  • Uniformed staff in the Defence Fire Service
• they are ex-regular service personnel who have served in the Armed Forces for a minimum of six years, and can produce a Discharge Certificate (or similar documentation) as proof, where they apply within two years (24 months) of the date of discharge from service or
• they are the surviving partners of regular service personnel who have died in service, where they apply within two years (24 months) of the date of being bereaved. Read about surviving partners in the MOD surviving partners guidance.

3.2.3.2 There is a Forces Help to Buy scheme which allows qualifying service personnel to borrow up to half their annual salary by way of an advance. This scheme is administered by the Ministry of Defence with more information to be found on the Forces Help to Buy website.

3.2.4 National Parks, Areas of Outstanding Natural Beauty and rural exception sites

3.2.4.1 Where Shared Ownership homes are being delivered in either a National Park, Area of Outstanding Natural Beauty or on a rural exception site then a prioritisation of applicants can be applied. In most cases this will be agreed by the local authority and set out in a Section 106 agreement or through other formal means. The agreement is likely to stipulate that priority will be given to applicants with some form of connection to the local area. Additionally, the agreement will also likely include a cascade system to identify in order the next areas and / or criteria for the priority of applicants that will apply.

3.2.4.2 The National Planning Policy Framework provides the following definition of a ‘rural exception site.

‘Small sites used for affordable housing in perpetuity where sites would not normally be used for housing. Rural exception sites seek to address the needs of the local community by accommodating households who are either current residents or have an existing family or employment connection. A proportion of market homes may be allowed on the site at the local planning authority’s discretion, for example where essential to enable the delivery of affordable units without grant funding.’

3.3 Joint and sole applicants

3.3.1 Joint applicants for a Shared Ownership home can only proceed on the condition that both applicants become the joint legal owners of the home. For a joint application both applicants must meet the Shared Ownership eligibility criteria and the assessment of affordability will be based on the financial circumstances of both.

3.3.2 It is permissible for just one person in a household to submit an application as a sole applicant. In such circumstances the sole applicant would become the sole legal owner of the Shared Ownership home and only their eligibility and affordability would be assessed. The exception to this would the assessment of gross household income which will need be based on all household members and will be required to be within the £80,000 threshold.

3.3.3 All Shared Ownership applicants who already own, or part own, a home must sell it either before or at the same time as buying through Shared Ownership.

3.3.4 There is nothing to prevent an applicant(s) being supported in their purchase of a Shared Ownership home by a trust fund held by an external party, family members, etc. However, the Shared Ownership application should still be in the name of the applicant(s) and it is they who will become the legal owner of the home. It is not possible for a trust fund to become a joint legal owner of a Shared Ownership home as the trust is unable to join in the application and be assessed according to the same criteria.

3.4 Income and assets

3.4.1 For all Homes England grant funded homes for Shared Ownership, £80,000 is the maximum gross household income threshold. This assessment should be based on the income of all members of the household whether they have joined the application or not.

An exception would be the income of children under 18 and any other household members whose residence in the home is unlikely to be permanent. Only in exceptional circumstances will Homes England consider applications from households with incomes above the maximum threshold.

Examples of the kind of circumstances where this may be considered or agreed include:

• where an element of an applicant’s household income is being used for non-household expenses such as on-going care costs
• where there are payments for child maintenance as part of a legal divorce settlement

Where providers consider cases are exceptional they should prepare a robust business case setting out why the threshold should be waived and submit this to Homes England via [email protected]. Each case will be considered on its individual circumstances.

3.4.2 Capital, access to that capital, and any income generated by it will be taken into account when assessing eligibility for Shared Ownership. However, any lump sums paid to eligible members of the armed forces as a result of illness or injury are to be disregarded when assessing eligibility and affordability (see section 6 below). The above applies to one-off lump sums only and not to other payments, such as pensions, which are still classed as income.

3.4.3 ‘Access to capital’ as described above means that applicants will be expected to liquidate what capital assets they may have. Capital assets could include savings, bonds, shares, land and any other assets or investments.

3.4.4 Applicants must be able to afford their purchase and sustain their housing costs. Providers must undertake appropriate checks on the applicant to ensure that they are able to do this (see section 6).

3.4.5 As part of this process, providers will need to check the applicant’s immigration status (see section 3.6 below).

3.4.6 It is the applicant’s responsibility to notify the provider of any changes to their circumstances after the initial application.

3.4.7 Where applicants may have received, or be eligible for, cash incentives from local authorities and intend to use them as a contribution towards a purchase through Shared Ownership, this may be classed as double subsidy. Such incentives will not make applicants ineligible provided that the relevant local authority has approved its value for money test. Homes England will not ask to see a copy of the local authority assessment but providers must retain confirmation that the local authority test has been completed.

Background guidance

Prior to April 2011, providers were required to make an individual business case to Homes England in all cases of potential double-subsidy. This decision has now been devolved to the local authority. This approach will give local authorities greater flexibility to assist social tenants in their areas and to respond to local circumstances.

We are not prescriptive in terms of how local authorities should make such decisions and are supportive of local authorities who wish to encourage social tenants in their area into sustainable home ownership.

Some things which local authorities may wish to consider include:

• the combined cost of the incentive and the grant funding for the Shared Ownership home compared with the cost of new rented provision
• the type or size of homes likely to be vacated (for example, large family homes or bungalows) and whether these may be more expensive or difficult to develop
• particular pressures on rented housing in the area and comparative costs associated with this (for example, costs of temporary accommodation for homeless households)
• whether or not the incentive payment is repayable, in what circumstances and subject to what conditions. A genuine loan would not count as double-subsidy and therefore not need to be subject to this test.

Assisting existing social tenants to meet their home ownership aspirations by purchasing through Shared Ownership where this is sustainable can generate re-lets at lower cost than new rented provision.

Where existing tenants intend to support their Shared Ownership application with their ‘incentive’, local authorities will be required to sign off their value for money test. This test forms part of the local authority’s consideration of its tenants’ incentive schemes.

3.4.8 The structure of such incentive schemes is a matter for the local authority but providers must satisfy themselves that their legal interests are not jeopardised. For the avoidance of doubt, Homes England will not allow any incentive schemes which involve a legal charge on the property where we already hold a legal charge. Providers can allow a legal charge to be applied on other forms of affordable home ownership but such charges will not affect the amount of grant due to be repaid / recycled, for further information on calculating recoverable grant see Grant Recovery section 3.

3.5 Existing home owners

3.5.1 Owner occupiers can access Shared Ownership subject to the following conditions:

• That they meet the general eligibility criteria for the scheme, in particular that their annual household income is no more than £80,000 and they are otherwise unable to afford to purchase a suitable home to meet their needs without assistance
• That they are required to have already sold their property or sell their property at the same time as buying through Shared Ownership (see 3.5.3 below for details)

3.5.2 Existing shared owners are able to purchase either a newly built Shared Ownership home, or can purchase an existing Shared Ownership resale home. Existing shared owners must continue to meet the general eligibility criteria for Shared Ownership of having an annual gross household income of less than £80,000 and be otherwise unable to afford to purchase a home on the open market. Existing shared owners are required to have disposed of their existing Shared Ownership home at the point of purchase.

3.5.3 Existing owners deemed eligible in accordance with 3.5.1 above are required to have already sold their property or sell their property at the same time as buying through Shared Ownership. In exceptional cases where an applicant is prevented from accessing or selling their existing home an application may be considered, but only with Homes England’s prior written agreement.

Examples where exceptional circumstances may be considered

An applicant is prevented from returning to the country where their home is located. Providers must contact the Provider Management team and provide full details of why they consider an application should be allowed to proceed.

As part of a legal separation or divorce arrangement, it can be evidenced that the Shared Ownership applicant will not benefit financially from any future sale of the property where they are unable to remove themselves from the title deeds of the home or reach agreement on the sale of the home.

3.5.4 Requests to waive the requirement to sell an existing property will normally be denied unless there are exceptional circumstances, such as explained above. Should providers receive requests from applicants to waive the requirement to sell existing property in other circumstances they should bear in mind the following guidance.

Requests to waive the requirement to sell existing properties in the following circumstances will normally be denied where such properties are:

• second homes
• holiday homes
• homes abroad
• homes in negative equity

It is our policy that the above properties should be sold before it is asked to help someone purchase a property intended to be the applicant’s main residence.

3.5.5 If, having considered the above requirements and guidance, a provider is still of the opinion that an application should proceed the provider must forward a detailed request to Homes England via [email protected] setting out the following:

• The applicant’s reasons why the application should be allowed to proceed
• Details of how the applicant has demonstrated that the existing property could not be sold
• Why the applicant could not borrow against the existing property to fund a purchase without government assistance
• The provider’s own reasons for supporting the application.

The fact that we are prepared to consider exceptional cases is not an indication that there will be a positive outcome.

3.5.6 Applicants with existing property which may be considered commercial in nature may be excused from selling such property where the following criteria are met and provided Homes England has given its prior approval:

• The property is not or would not be suitable as a residential dwelling, such as a shop, or other business premises which provides the applicant’s main source of income
• The property is residential and is already tenanted and the applicant can demonstrate:
  1. No access to the property for their own residential needs
  2. That the rental income is the applicant’s main source of income
  3. That the total household income is below the maximum household income permitted
• The applicant has satisfactorily explained why they should not sell the property and put the proceeds towards the purchase of a residential home.

3.6 Immigration Act status

3.6.1 People accessing grant funded Shared Ownership properties are required to demonstrate that they can afford and sustain home ownership in the longer term (see section 6 below).

3.6.2 Those applicants who are subject to immigration control (i.e. who require leave to enter or remain in the United Kingdom under the Immigration Act 1971) are less likely to be able to satisfy this requirement unless they have indefinite leave to remain in the UK.

3.6.3 However, there is nothing which legally prevents individuals subject to immigration control and without indefinite leave to remain from accessing Shared Ownership, provided that they fulfil the provider’s usual requirements. If such an applicant can demonstrate their ability to sustain their home ownership obligations, it is likely to be discriminatory to deny them access to affordable home ownership assistance.

3.6.4 Providers may wish to take the view that if a qualifying lending institution is willing to provide finance for the purchase then the individual is considered good security and therefore should be allowed access to the scheme.

3.6.5 Providers must adopt a case by case approach and are responsible for the decision as to whether the individual in question qualifies for Shared Ownership.

3.7 Specialist eligibility criteria

3.7.1 There are additional considerations regarding eligibility for Home Ownership for People with Long Term Disabilities (HOLD) and Older Persons Shared Ownership (OPSO).

3.7.2 Home Ownership for People with Long Term Disabilities (HOLD)

People with long term or other disabilities would normally be expected to apply for new build or resale homes provided through Homes England’s Shared Ownership programmes, but in certain circumstances they can have access through the specialist HOLD product.

3.7.3 If there are no Shared Ownership (or other affordable home ownership product) homes available in a particular area or the existing homes are unsuitable, the purchase of a property on the open market through HOLD may be considered provided that there is a provider willing to participate. In these cases applications to purchase via HOLD will also require a letter of support from the applicant’s local authority stating that the applicant has a specific need that means that available Shared Ownership properties are unsuitable, or that an applicant needs to live in a particular area where no suitable Shared Ownership homes are available.

3.7.4 HOLD applicants need to be able to sustain the cost of home ownership. This will require applicants to either have a lump sum sufficient to cover the initial purchase without the need for a mortgage, or an on-going source of income sufficient to secure mortgage finance.

3.7.5 There are currently a very limited number of lenders providing interest only mortgages for applicants intending to cover their mortgage repayments solely through the Support for Mortgage Interest benefit. Providers should note that participating lenders have geographical restrictions and they should advise applicants to seek their own financial advice on the availability of lenders.

3.7.6 Providers intending to offer HOLD should therefore ensure that applicants are strongly advised to get independent financial advice on what assistance may be available to them, and their ability to afford Shared Ownership.

3.7.7 Older Persons Shared Ownership (OPSO)

Applicants must meet Homes England’s standard eligibility criteria (see section 3.2 above). However, the following exceptions and additions should be followed:

• OPSO is only available for people aged 55 or over
• OPSO applicants who are currently homeowners will need to sell their existing property before buying using OPSO, though they will not require a local authority nomination in order to be approved as eligible
• The provider will not carry out the usual sustainability assessment, but in determining eligibility must take in to account the level of equity available from the sale of any existing property along with any additional savings. Applicants with sufficient equity to be able to purchase a suitable property on the open market should not be assessed as eligible.
• OPSO applicants may need to retain a higher level of savings or investments than other applicants to provide ongoing income (in which case it should be taken account of in the headline eligibility check) to cover ongoing living and care costs. There is no cap on the level of savings or investments that an applicant can retain for this purpose. The provider should make a judgement on this on a case-by-case basis, according to the individual circumstances of the applicant, but the overall expectation remains that OPSO applicants will use the majority of their capital to fund the purchase of the property
• For extra care schemes providers can use an additional degree of flexibility when making this assessment, to take into account the higher ongoing costs of the care being provided

4. Rents and service charges

4.1 Rent levels at initial sale

4.1.1 Guidance about Shared Ownership rents:

Shared Ownership leases are assured tenancies and as a result are not subject to rent control under the Rent Act 1977. The setting of rents for Shared Ownership is a matter for the provider to agree with the leaseholder at the point at which the lease is granted.

However, for grant funded schemes, the provider has to comply with the relevant requirements set out in this Capital Funding Guide, which sets a maximum initial rent level and maximum level of annual rent increase.

4.1.2 Rents and service charges must be reasonable and consistent with those agreed at bidding stage and in compliance with the Regulator of Social Housing’s standards.

4.1.3 The total initial rent must not exceed 3% of the capital value of the unsold equity at the point of initial sale, but it can be less. In this respect ‘initial sale’ refers to the first sale of a new Shared Ownership home and does not refer to future resales to a new shared owner.

4.1.4 Providers are encouraged to set total rents that average no more than 2.75% of the value of the unsold equity at the point of initial sale across their portfolio of new Shared Ownership homes.

4.1.5 For the avoidance of doubt the above thresholds for the total rent to be charged at initial sale relate to the sum of the Specified Rent and any ground rent or estate rent charged. See section 4.4 for more information on ground rent.

4.1.6 For resale Shared Ownership homes the lease is assigned to the purchaser with the rent set at the same level as the previous shared owner, and future annual rent increases in line with paragraph 4.2.2 below. In other words, with a resale Shared Ownership home there is no requirement to re-base the initial rent to be charged to the new shared owner in relation to the valuation as per paragraph 4.1.3 above.

4.1.7 In setting rents providers must have regard to the affordability of the total housing expenditure to the residents, including:

• mortgage costs
• rent
• service charges (including the cost of management and insurance)

4.2 Rent increases

4.2.1 Once the method of setting increases has been decided on and written into the lease, then the provisions of the lease will be binding.

4.2.2 On the 12th October 2023 the model leases were updated so that the annual rent increase is made by reference to the Consumer Price Index (CPI) + 1.0% instead of the Retail Price Index (RPI) plus 0.5%. This change was announced by the Department for Levelling Up, Housing, and Communities – see Shared Ownership rent reform. In either case the calculation is based on the relevant index’s figure for a specified month which is published annually.

4.2.3 When the index figure for the specified month is nil, any rent increase will be limited to a maximum of 0.5% (where the RPI-based model lease applies to a scheme), or 1.0% (where the CPI-based model lease applies). Where an index figure for the specified month is negative the following applies.

a) for RPI-based model leases any rent increase will be limited to a maximum of 0.5%.

b) for CPI-based model leases, where an index figure is between 0% and minus 1.0% then CPI + 1.0% applies; where an index figure is minus 1.0% or below then a maximum 0% rent increase applies.

4.2.4 For the avoidance of doubt, a rent review can be one of the following:

(i) be set below the limit set out in 4.2.3 above;

(ii) a rent increase not applied; or

(iii) where considered appropriate by the landlord, a rent reduction may be applied.

Homes England’s permission is not required should a landlord wish to charge a lower annual rent increase than is set out in the lease for a given year, or a rent reduction. This means that, for example, an increase can be applied that is less than RPI + 0.5% or CPI + 1%.

4.2.5 Subject to paragraph 4.2.2 above, this is a matter for landlords to decide.

Further guidance

4.2.6 For advice on interpretation of the terms and enforcement by or against the landlord, the landlord or the leaseholder should take their own legal advice.

4.2.7 When choosing not to apply a rent increase when the relevant index is nil or negative, Homes England does not anticipate that Shared Ownership leases should be subject to a formal variation as this would be both costly and time consuming for both landlords and leaseholders.  The latest model leases published in October 2023 now make it clear that downward rent reviews are permissible. Homes England’s permission is not required if a Deed of Variation is entered into to incorporate either:

 i) the Rent Review schedule in full to include CPI being used as the relevant index, or

ii) clause 3.1.2 from the Rent Review schedule in the CPI-based lease (October 2023) to make it clear that a downward rent review is allowed. 

However, both parties to the lease should seek their own legal advice as necessary.

4.2.8 Providers can choose whether to increase rents on the anniversary date of each lease, or whether to increase all their Shared Ownership rents on the same date each year.

4.2.9 Notice of any rent review must be given in writing to the leaseholder according to the manner and time stated in the lease.

4.2.10 To understand which model lease, and therefore rent review, should be used please refer to the guidance in section 11.2.

4.3 Level and quality of management and maintenance services and service charges

4.3.1 It is a condition of grant that Shared Ownership leases must include a service charge clause where appropriate. Please see section 5.3.39.

4.3.2 Even with the changes introduced to the Shared Ownership product within the AHP 2021 to 2026 with respect to repairs and maintenance, there may be communal areas which the provider or managing agent is responsible for as set out in the lease. Providers will need to apportion the cost of this to the individual homes and recover the costs from the leaseholders by way of the service charges.

4.3.3 Providers must comply with the Regulator of Social Housing’s Regulatory Standards and any Landlord and Tenants Acts in respect of setting service charges. The level of service charge must be affordable for the intended client group.

4.3.4 The provider must ensure, in consultation with the leaseholder, that its building insurance policy provides adequate and appropriate cover particularly in respect of alternative accommodation for the leaseholder should the property become uninhabitable.

4.3.5 Providers must set up and maintain sinking funds for the long-term upkeep of flats or other buildings where the full structure is not demised. The contribution to a sinking fund for freeholders is a contractual obligation as a condition of conveyance, rather than a statutory one. Providers will need to consider the most appropriate mechanism for the recovery of these monies bearing in mind the purchasers and potential purchasers involved.

4.3.6 For Shared Ownership homes funded under the AHP 2021 to 2026, it is important to note that In calculating the annual sinking fund charge, landlords should not factor in any external and structural repair work, expected or unexpected, within the first 10 years. Sinking fund contributions cannot be used for any works, expected or unexpected, within the first 10 years.

4.4 Ground rents on grant funded shared ownership homes from 23rd May 2022

4.4.1 Government has passed the Leasehold Reform (Ground Rent) Act 2022 setting out that ground rents on leasehold homes are to be banned (or set at a peppercorn per annum) in new leases subject to various exceptions. This is due to come into force on 30th June 2022 (or 1st April 2023 for retirement homes).

4.4.2 Ahead of the legislation being enacted the Department for Levelling Up, Housing and Communities (DLUHC) has taken the policy position that, as of 23rd May 2022 for Shared Ownership homes delivered through Homes England’s AHP 2021 to 2026 or SOAHP 2016 to 2021, any ground rent should be either nil or at a peppercorn per annum. This includes Older Persons Shared Ownership (OPSO) homes.

4.4.3 The restriction on ground rents applies to the shared owner’s equity of the home. Specified Rent on the unsold equity may still be charged in line with the requirements of paragraphs 4.1.3 to 4.1.5 above. Providers are required to charge rent in line with their bid for grant allocation as per section 2.4.3.

4.4.4 Please note that this ground rent requirement only applies to new Shared Ownership homes where contracts have not been exchanged by 23rd May 2022. Any Shared Ownership homes where contracts have been exchanged before this date do not need to meet this requirement. Enquiries relating to this should be sent to [email protected].

5. Leases

5.1 General

5.1.1 For grant funded Shared Ownership, the rights and obligations of both the landlord (i.e. the provider) and tenant (i.e. the shared owner) are set out in the Shared Ownership lease. The provider has a contractual right to ensure that the shared owner complies with the terms of their lease. Providers developing grant funded homes on Shared Ownership terms must ensure that their Shared Ownership leases are mortgageable and contain provisions (including Homes England’s required fundamental clauses – see section 5.2) that qualify the scheme for grant (see sections 5.3 to 5.8 below). In all cases, providers must consult their solicitors on the form of lease to be used, in particular in relation to the scheme type for which the Shared Ownership lease is required.

Model leases

To assist Shared Ownership providers, Homes England has published various model leases for houses and flats, Designated Protected Areas, Older Persons Shared Ownership and Social Homebuy. These model leases can be found in section 11. We strongly recommend that providers developing Shared Ownership with Homes England grant should adopt the model lease though this is not a requirement.

However, the model leases provided by Homes England are considered as a widely accepted route to providing the necessary protection and comfort to providers, leaseholders, lenders and others. Providers looking to use alternative leases that differ too much from the model leases in content and format may find particular difficulties in selling or re-selling their Shared Ownership homes.

Providers can amend the model leases to suit circumstances without the consent of Homes England. However, Homes England’s consent is required if providers wish to vary one of the fundamental clauses as detailed in section 5.2. Any such consent should be requested via [email protected] though agreement is only usually provided on a very exceptional basis.

The model leases and related documentation may be amended from time to time in order to reflect changes in legislation and / or policy. In most cases such changes will be prospective and therefore should not affect leases that were issued before a particular change was implemented.

Land Registry restrictions

From 1 October 2008, our model leases have not required the parties to enter a restriction on property title at the Land Registry in favour of Homes England. Such restrictions used to be entered when Shared Ownership leases were registered to ensure that Homes England’s consent was sought to any variation to the terms of the registered lease and to protect public funds.

We no longer rely on a restriction at the Land Registry to protect the fundamental clauses in Shared Ownership leases. Instead, we will rely upon adherence to both the conditions set out in the affordable housing programme delivery contract and this Capital Funding Guide, and potentially the grant recovery provisions.

For further information about the removal of the restriction please refer to our guidance entitled ‘Procedures for varying Shared Ownership leases’ in section 11.7 of this guide.

5.1.2 The current suite of Shared Ownership leases for homes funded through either the AHP 2021 to 2026 or SOAHP 2016 to 2021 can be found in section 11.2 of this guide.

Please note that there are multiple suites of leases to reflect the following.

i) the changes introduced to the Shared Ownership product for homes being delivered through Homes England’s AHP 2021 to 2026 as well as homes still being delivered through the SOAHP 2016 to 2021

ii) the change in October 2023 to base the Rent Review formula on CPI rather than RPI for qualifying Shared Ownership homes (see section 11.2 for more detail).

5.1.3 To qualify for Homes England grant providers must ensure that leases contain the fundamental clauses provided in the model lease as described in section 5.2 below.

5.1.4 Where providers are not using Homes England’s model leases, they must ensure that their leases comply with our scheme / grant criteria and that they contain the fundamental clauses exactly as worded in the model leases.

5.1.5 Providers must retain a copy of the form of lease granted for each scheme (i.e. one example pro forma for the scheme) as well as retaining the original counterpart lease signed by each leaseholder (i.e. for each individual property) at their registered office or solicitor’s office. Alternatively, electronic original copy documents are acceptable provided they are stored securely.

5.1.6 Providers should refer to Homes England’s guidance entitled ‘Procedures for varying Shared Ownership leases’ (see section 11.7 for further information) if they wish to vary any of the lease clauses. Providers should note that we will not normally agree to requests to vary any of the Shared Ownership model lease fundamental clauses.

5.2 Fundamental clauses

5.2.1 The model leases, published in section 11.2, are for use by providers for grant funded Shared Ownership homes completed on or after 30 April 2015 (see paragraph 5.1.3 above). They contain the following fundamental clauses which must be included in all Shared Ownership leases for homes funded by Homes England.

For both SOAHP 2016 to 2021 and AHP 2021 to 2026 Shared Ownership homes the following fundamental clauses apply:

• alienation provisions (refer to clause 3.18 in the model flat lease and 3.19 in the model house lease)
• mortgagee protection (refer to clause 8 in the model flat lease and clause 6 in the model house lease and see below for additional guidance on the clause)
• staircasing provisions (refer to the sixth schedule of the model flat lease and part 1 of the fifth schedule in the model house lease)
• protected area staircasing provisions, where appropriate
• rent review (refer to Schedule 5 of the model flat lease and Schedule 4 of the model house lease); note that from October 2023, an updated suite of model leases with the Rent Review based on the CPI index has been published (see section 11.2)
• pre-emption provisions (refer to clause 3.19 and Schedules 7 and 8 in the model flat lease and clause 3.20 in the model house lease)

New Shared Ownership homes provided through the AHP 2021 to 2026 from 1 April 2021 have the same fundamental clauses as the SOAHP 2016 to 2021 programme with the following amendments or additions. For ease of reference these are highlighted in blue in the model leases.

Amendments or additions to fundamental clauses

• The landlord’s period to nominate a purchaser or accept a surrender of the lease in the alienation provisions shall be reduced from eight weeks to four weeks and the related new standard form restriction inserted in LR13
• The new 1% Staircasing schedule (Schedule 10 in the model flat lease and Schedule 7 in the model house lease) together with any associated cross references in the main body of the lease
• The new Initial Repair Period schedule (Schedule 9 in the model flat lease and Schedule 6 in the model house lease) together with any associated cross references in the main body of the lease (note the Right to Shared Ownership section 12 of this chapter has more information about the Initial Repair Period in relation to where this is exercised)
• The mortgagee forfeiture notification proviso (clause 6.2.3 in the model flat lease and clause 5.2.3 in the model house lease)
• Any transfer deed on final Staircasing which creates an Estate Rent Charge must exclude section 121 of the Law of Property Act 1925 (part 2 of Schedule 5 in the model house lease only)

Mortgage lenders need to ensure that adequate security exists at all times for their lending on properties purchased on Shared Ownership terms from providers.

Although lenders can rely on the standard form of Shared Ownership lease as security for lending, there are circumstances in which a lender will view their security as being at risk - for example, where a provider is considering possession or forfeiture proceedings under the provisions of Schedule 2 to the Housing Act 1988 (Grounds for Possession of Dwelling-Houses let on Assured Tenancies).

To ensure mortgage lenders have a reasonable opportunity of remedying a breach of the lease (which could result in a provider taking legal action under the provisions of 1988 Housing Act), lenders will require providers to provide a written undertaking to give reasonable notice before legal proceedings are commenced. For AHP 2021 to 2026 homes this is covered by a fundamental clause (clause 6.2.3 in the model flat lease, clause 5.2.3 in the model house lease) and therefore an undertaking may not be required.

For additional guidance on providers’ obligations, please see the Shared Ownership Joint Guidance published by the Homes and Communities Agency (now Homes England), National Housing Federation and the Council of Mortgage Lenders (now UK Finance). This guidance will be updated in 2024 to reflect the new Shared Ownership model and current good practice.

5.2.2 For leases issued with effect from 22 October 2010, the service charge clause is not treated as a fundamental clause (please see section 5.3.39 below). For enquiries relating to proposed changes to existing leases already granted, please contact Homes England at [email protected].

5.2.3 In addition to the fundamental clauses, where any defined terms in the lease is used within a fundamental clause, that defined term similarly cannot be altered without Homes England’s consent.

Key information for shared owners

5.2.4 For SOAHP 2016 to 2021 Shared Ownership homes, in addition to these fundamental clauses all leases granted on or after 30 April 2015 must include an appendix setting out key information for shared owners. Homes England has published a version which can be found in section 11.2 and forms part of the model leases at Appendix 3. The information contained in this document explains to the shared owner, in plain English, their rights and responsibilities under the lease. Providers can add further information to this but must not change any of the existing wording.

5.2.5 For AHP 2021 to 2026 Shared Ownership homes, in addition to these fundamental clauses providers must complete and supply the prospective customer with the Key Information Documents as set out in section 11.3. The information provided in these is to ensure that the customer can make an informed decision. The documents detail the stage at which they should be provided to the prospective purchaser.

5.2.5.1 The provider must also send the individually completed Key Information Documents to the purchaser’s solicitor with the Memorandum of Sale and obtain confirmation from the solicitor that the buyer has received them.

5.2.6 Varying Shared Ownership leases

Where providers seek to vary a lease, they must first refer to Homes England’s guidance entitled ‘Procedures for varying Shared Ownership leases’ (see section 11.7 for further information).

They will then need to seek their own legal guidance on whether the proposed variation affects a fundamental clause, either by directly changing it or by introducing other changes that affect the application of the clause.

Where it is the case that a variation affects a fundamental clause, providers must seek Homes England’s approval for the variation via [email protected]. It is anticipated that approval will only be given to correct errors or in very exceptional circumstances.

Guidance

Having first referred to our guidance document above, providers must, as a minimum. confirm and provide details as follows:

• Whether or not the variation affects a fundamental clause
• Whether it is a draft lease or an existing one
• Which fundamental clause is affected and the consequences for the operation of the lease should a change be approved
• Why the variation is necessary
• The implications should approval to vary not be given and
• A track changes version of the proposed revision

5.2.7 The variation of a fundamental clause without Homes England’s approval may result in grant recovery.

5.3 General features

5.3.1 Term

To qualify for grant funding the term of the lease must be at least 25 years longer than the term of the provider’s long term loan and be acceptable for mortgage purposes.

Shared Ownership and Affordable Homes Programme (SOAHP) 2016 to 2021

5.3.2 The minimum lease term for Shared Ownership homes funded under the SOAHP 2016 to 2021 is 99 years. However, providers should consider offering the maximum lease term possible to avoid issues with mortgage lending and costly lease extensions.

5.3.3 Where the provider’s interest (the landlord’s interest) is leasehold and that interest is 99 years or fewer, the term of the lease granted on the initial sale must be for a period which terminates five days prior to the termination of the landlord’s interest.

Affordable Homes Programme (AHP) 2021 to 2026

5.3.4 The minimum lease term for Shared Ownership homes funded under the AHP 2021 to 2026 is 990 years.

5.3.4.1 The only exception to this policy is for the HOLD variant product where the minimum lease term should be 125 years. However, for all purchases through HOLD, providers should still offer the maximum lease term available, including the minimum 990 years where possible. A lease term of shorter than 990 years is only permissible where no suitable alternative home with a longer lease is available. Providers should fully explain the implications of a shorter lease to the customer and highlight the potential costs of a lease extension

5.3.4.2 Providers offering a lease term of below 990 years for HOLD purchases do not need to seek the permission of Homes England to do so. Homes England, however, should be notified of all such instances via [email protected].

Initial share to be purchased

5.3.5 For Shared Ownership homes being delivered through Homes England’s AHP 2021 to 2026 from 1 April 2021 the shared owner’s initial share of the property must be a minimum of 10% and a maximum of 75%. For homes delivered through the SOAHP 2016 to 2021 then the minimum share should be 25%, even if completion and sale may take place after 1 April 2021. However, providers do have the option of offering the provisions of the new Shared Ownership model for the AHP 2021 to 2026 where homes complete after 1 April 2021. Where providers choose to do this then they must offer all of the provisions of the new Shared Ownership model. Providers cannot choose to offer just some of the provisions, and not others.

Premium

5.3.6 The premium payable (sale price of the lease) on the grant of the lease must be equal to the relevant percentage of the market value of the property as assessed by an independent Royal Institution of Chartered Surveyors registered valuer. By independent we mean that the valuation is undertaken by an individual or organisation external to the grant recipient organisation. For example, if 25% is sold, the premium will be 25% of the market value.

5.3.7 Providers must instruct the valuer to assume that:

• the sale is for the freehold interest, or where the provider’s interest is leasehold, a 990 year lease or such lesser term of years as the provider holds
• the sale is an open market sale
• a Shared Ownership lease has not been granted
• the sale is to be with vacant possession

5.3.8 In exceptional circumstances providers may sell at a discount, where there has been a change of market circumstances since the allocation stage.

Selling at a discount

Where property prices are very high compared with local incomes, many applicants may have difficulty funding their purchase, even where they only wish to buy the minimum share.

Under these circumstances, the provider can sell their share of the property at a discount - i.e. selling an equity share at a lower price than the value of their share.

For example:

Market value of property | £400,000

Market value of 10% share | £40,000

The provider may choose to sell a 10% share for £36,000 rather than the £40,000 it is worth. This is selling at a discount, as the leaseholder obtains their10% share for less money that it is worth. The provider has therefore 'lost out' financially.

An alternative approach would be to assess what the applicant can afford - £36,000 - and sell them an appropriate equity share. However, in this example the provider would have to sell only a 9% share. As this is below the minimum 10%, the provider is unable to do this on a grant funded scheme.

5.3.9 All proposals to sell at a discount must be agreed by Homes England. Proposals to sell at a discount will only be considered where the provider provides evidence that prospective buyers cannot afford to purchase at least 10% of the market value.

5.3.10 Discounts cannot be considered:

• where the price would be reduced to below the cost of provision
• where the value of the discount would exceed the maximum allowed for the statutory Right to Buy or Right to Acquire for the area, whichever is the higher

5.3.11 Where a discount is being offered, providers must ensure (in consultation with their legal advisors) the benefit of the discount is passed on to all future purchasers. Discounts must not be given where only the first purchasers would benefit.

5.3.12 Staircasing provisions (see also section 7.2)

With the exception of rural exception sites, Designated Protected Area and Older Persons Shared Ownership, all grant funded Shared Ownership leases must contain provisions allowing the leaseholder to buy further shares up to 100%.

5.3.13 Leases containing restrictive staircasing provisions (other than for the products mentioned above) will render a scheme ineligible for grant funding.

5.3.14 The lease must provide that the leaseholder can staircase to 100% in accordance with the Shared Ownership provisions of the Homes England programme under which the home was funded. Shared Ownership homes provided through the AHP 2021 to 2026 allows leaseholders to purchase a minimum 5% share or, alternatively, allows them to purchase an additional 1% per year for up to 15 years (or allows a combination of both). For Shared Ownership delivered under the SOAHP 2016 to 2021 (or previous programmes) the minimum staircasing tranche / share that can be purchased remains at 10%. Note that these minimum staircasing provisions include the final tranche to 100% outright purchase.

Maximum tranche percentages: guidance

Homes England policy does not restrict staircasing to a maximum tranche percentage, however clause 5(2) of The Housing (Shared Ownership Leases)(Exclusion from Leasehold Reform Act 1967)(England) Regulations 2009 allows for additional shares to be acquired in instalments of 25% (or such lesser percentage as may be specified in the lease). The model Shared Ownership house leases reflect this requirement by way of the staircasing provisions and the definition for portioned percentage.

Landlords should seek their own legal advice, but we would allow more than one separate staircasing transaction to occur on any one day if deemed appropriate to enable staircasing purchases in excess of 25%.

5.3.15 Exclusion from leasehold enfranchisement

What is leasehold enfranchisement?

Leasehold enfranchisement is a loose term which is used to refer to a number of rights to which leaseholders may be entitled, allowing them to improve the ‘quality’ of their title in the following areas:

1 Flats

a) Lease extension b) Collective purchase of the freehold c) Right to manage

2 Houses - Buying the freehold 3 Right of first refusal / first option to buy)

5.3.16 All leases granted in respect of houses and bungalows must be excluded from the enfranchisement provisions of the Leasehold Reform Act 1967, Leasehold Reform (Housing and Urban Development Act) 1993 and The Commonhold and Leasehold Reform Act 2002 in order to qualify for grant. Changes to the above legislation by means of the Housing (Shared Ownership Leases (Exclusion from Leasehold Reform Act 1967) (England) Regulations 2009 are designed to further protect landlords from early enfranchisement. Landlords must take their own legal advice as appropriate.

5.3.16.1 However, the Government has announced its intention to extend the statutory right to a lease extension to shared owners. See section 7.6 for guidance on lease extensions.

5.3.17 Rent

Providers must ensure that there are appropriate rent provisions (see section 4) and a clear mechanism to review the rent on an annual basis.

5.3.18 Stamp Duty and legal fees

Purchasers of Shared Ownership homes are responsible for the payment of their own legal fees and Stamp Duty Land Tax.

5.3.19 The Shared Ownership leases must contain an appropriate Stamp Duty Land Tax statement which gives an option of paying either:

• on a market basis as if the property had been purchased outright from the beginning
• in stages, paying the amount due on the initial share, and then only paying further amounts when the shares purchased exceed 80% of the value of the property

Guidance

His Majesty’s Revenue and Customs (HMRC) allows purchasers of properties sold on Shared Ownership terms from a qualifying body to elect whether to pay Stamp Duty Land Tax on the value of the initial share purchased only (Option A) or on 100% of the value of the equity (Option B). The lease contains both options so that the purchaser’s conveyancer can mark the purchaser’s choice. Where a shared owner elects to pay Stamp Duty Land Tax on the value of the initial share purchased only, Option B should be removed from the lease. Where the purchaser intends to pay Stamp Duty Land Tax on 100% of the value of the equity, then Option A should be removed. The certificate appears in the model House lease at paragraph 8 and in the model Flat lease at paragraph 9.

A Stamp Duty Land Tax enquiry line (0300 200 3510) can help calculate the amount of tax payable in any particular scenario but cannot advise which option is in the purchaser’s best interest and both options could have potential benefits for the purchaser. Providers are encouraged to bring the availability of this service to the purchaser’s attention in order that they may make an informed choice.

Please also refer to the HMRC website for more information.

5.3.20 Providers should recommend that purchasers seek advice from their conveyancing solicitor over the best option for them. For additional guidance please see below.

5.3.21 Sub-letting

5.3.21.1 The Shared Ownership model leases made available by Homes England contain a clause that prohibits a sub-letting arrangement being made by the leaseholder — see the relevant ‘Assignment and Underletting’ provisions in the model leases. This is to protect the use of public funds and to ensure that applicants are not entering Shared Ownership potentially for commercial gain. Leaseholders can, however, request such an arrangement from their landlord where a genuine need for sub-letting has arisen (see section 5.3.22).

5.3.21.2 While sub-letting by a leaseholder is not allowed, the ability to take in a paying guest or lodger is allowed though it is recommended that a leaseholder wishing to do so informs their landlord prior to beginning any such arrangement. For more information on renting a room to a lodger, read ‘Letting rooms in your home: A guide for resident landlords’.

5.3.21.3 The provision of Shared Ownership is intended to meet an applicant’s residential needs and not to provide for any business purpose. Therefore, a Shared Ownership home should not be used for commercial purposes such as a short-term rental or a form of bed-and-breakfast type accommodation.

5.3.22 General guidance on sub-letting

5.3.22.1 Although shared owners do not have the right to sub-let their home, a provider may agree to sub-letting arrangements where there is a genuine need for it. Requests from shared owners must be considered on a case-by-case basis and providers must not adopt a blanket approach to their assessment processes. Sub-letting arrangements should not, for example, all be granted for the same length of time. Instead, all requests must be considered on their individual merits, with any sub-letting arrangements reflective of the shared owner’s particular circumstances.

5.3.22.2 Providers must ensure that information relating to their policy and approach to sub-letting is readily available to their shared owners in a clear and accessible format on their websites. This could, for example, be included as part of a ‘frequently asked questions’ section. Providers should also consider other instances where it might be useful to offer their shared owners this information. Information on sub-letting must be included in the Key Information Documents made available to buyers prior to their Shared Ownership purchase.

5.3.22.3 If a request to sub-let is received from a serving member of the Armed Forces who is required to locate away from the area in which they live, then this should be supported. The agreement of a provider in such circumstances can still be subject to the general sub-letting criteria set out in section 5.3.24, as well as any additional criteria established by the provider.

5.3.23 Providers should seek their own legal advice where they think it is required before agreeing to any sub-letting arrangement.

5.3.24 Issues to consider in the sub-letting of homes not affected by building safety issues

5.3.24.1 It is the provider’s decision as to whether they agree to any request from a shared owner to sub-let their home. The following issues are examples of things that providers may take into consideration when dealing with requests. As noted in section 5.3.22, a provider’s decision making must be flexible to account for individual circumstances.

• Do the reasons for sub-letting stem from a genuine, unavoidable need, rather than for speculation or gain by the shared owner?
• Does the person(s) to whom the shared owner sub-lets satisfy the eligibility criteria for Shared Ownership?
• Are the terms of the sub-letting arrangement best met by being for a fixed period of time, or would a periodic tenancy be more suitable?
• Does the shared owner need the permission of their mortgage lender to sub-let their home?

5.3.24.2 Where such a sub-letting arrangement is agreed by a provider, it is reasonable to expect the rent charged to any tenant to cover the shared owner’s ongoing housing costs.  This would include covering the costs of the shared owner’s mortgage, rent and service charge (as applicable), as well as any additional costs incurred such as any mandatory electrical, gas and fire safety checks.  Additionally, if there is any letting management fee (or similar) associated with the sub-letting arrangement, then this would be a reasonable expense for the shared owner to have covered.

5.3.24.3 Following establishment of the initial rent to be charged as set in the paragraph above, providers must also consider the shared owner’s potential need to increase rents on an annual basis to reflect any annual increases in their ongoing housing costs. This could, for example, involve the inclusion of a rent review mechanism in the agreement between the shared owner and their tenant, or through the exercise of the statutory rent increase (Section 13 of the Housing Act 1988) process. The relevant mechanism must be agreed between the shared owner and the provider prior to the start of the sub-let.

5.3.24.4 In taking decisions based on the particular circumstances of a shared owner, providers should also consider how the considerations they use to assess sub-letting requests interact with one another. For example, if it easier for the shared owner to sub-let their home to a tenant on the open market in order meet the costs associated with their Shared Ownership home, then the provider should not necessarily require the home to be sub-let to a new tenant who is eligible for Shared Ownership.

5.3.25 Additional guidance on the sub-letting of homes affected by building safety issues

5.3.25.1 Sub-letting requests stemming from issues linked to building safety issues should always be accepted by providers.  This does not, however, preclude the shared owner from having to secure the permission of their mortgage provider and / or the building’s freeholder for any such arrangement where this is required.

5.3.25.2 Where a sub-letting arrangement is agreed by a provider due to building safety issues, then a rent up to the market rent level for the type and location of the property in question can be charged by the shared owner.  This arrangement must also enable the shared owner to annually increase the rent in line with any change in the market level.  As per paragraph 5.3.24.3 above the relevant mechanism for annual rent increases must be agreed between the shared owner and the provider prior to the start of the sub-let. 

5.3.25.3 This ability to charge up to the market rent is to reflect the fact that shared owners living in homes with building safety issues are likely to have incurred increased costs.  Provided that evidence of the equivalent market rent can be provided, then allowing the property to be sub-let at this rent level is considered reasonable and fair.

5.3.25.4 Although the above guidance directly relates to homes funded by Homes England it is expected that a similar approach will be taken by providers with Shared Ownership homes that have not been funded by Homes England.  This will ensure that all shared owners experience a fair and consistent response from their landlord as regards any request to sub-let their home, but in particular where it is for building safety reasons.

5.3.26 Pre-emption Right

The Pre-emption Right is a fundamental clause of the Shared Ownership lease. Until 30 April 2015, Homes England’s model lease included a post final staircasing right of pre-emption as well as a pre-final staircasing right of pre-emption.

5.3.27 Changes introduced in 30 April 2015 removed the requirement to include the post final staircasing right of pre-emption. The pre-final staircasing right of pre-emption remains as a fundamental clause.

5.3.28 For properties where a Shared Ownership lease has been entered into prior to 30 April 2015 (or using the model form of lease applicable prior to 30 April 2015) there are a number of different scenarios which may apply:

Flats

1. Existing leases pre final staircasing – we recommend that the pro forma deed of variation should be entered into prior to or on final staircasing at the option of the leaseholder. The deed of variation is intended to remove the lease provisions relating to the post-final staircasing right of pre-emption. Once amended by the variation, the form of lease will allow the leaseholder to apply to remove the restriction from the title on final staircasing.

2. Existing leases post-final staircasing – the same form of deed of variation will apply. The amended form of lease will enable to leaseholder to apply to remove the restriction as it will no longer be required by the lease.

Houses

1. Existing leases pre-final staircasing – although a similar deed of variation could be used for the House lease, the only provisions which need to be changed are contained in the form of draft transfer which is appended to the lease. In our view it is very difficult to provide a useful pro forma deed of variation as each transfer will be specific to the property in question. As the draft form of transfer contained in the house lease is subject to further amendment in any case upon final staircasing, a more pragmatic approach would be to remove the Right of Pre-emption from the transfer at this stage. We confirm that the inclusion of the post final staircasing right of pre-emption is no longer a funding condition. Removal of the pre-emption provisions from the transfer on final staircasing will mean that a title restriction is no longer required for this purpose.

2. Freehold houses post-final staircasing – Shared Ownership providers who have the benefit of restrictions on title protecting post final staircasing Rights of pre-emption in relation to houses (former landlords) and former shared owners should note that the title restriction protecting the post final staircasing right of pre-emption is no longer a funding condition and should be dealt with, either through withdrawal or cancellation, prior to any onward sale on the open market. Once achieved the former shared owner would be free to sell on the open market without first having to offer back their property to the former landlord. Where the former shared owner intends to apply to remove the restriction on title, they may choose to make an individual application to cancel restriction through the Land Registry Form ‘RX3’ supported by evidence that the restriction is no longer required. Former landlords should provide reasonable assistance to former shared owners in providing confirmation of their support of such applications. Where the former landlord intends to withdraw the restriction on title themselves this can be achieved through Land Registry form ‘RX4.’

Further guidance

For flats, once the deed of variation has been entered into the restriction will only be required to stay on the property title prior to final staircasing.

Once the deed of variation has been registered against the title to the property, upon final staircasing the memorandum of final staircasing can be provided to the Land Registry as confirmation that the former shared owner has purchased 100% of the equity in support of the leaseholder’s application to remove the restriction.

For existing leases post-final staircasing, the former shared owner will need to apply to the Land Registry to remove the existing Form M restriction at the same time as applying to register the deed of variation against the title to the property.

We have agreed with the Land Registry that the executed form of deed of variation, together with a copy of the memorandum of final staircasing, will be sufficient supporting information to enable the leaseholder to apply for the removal of the restriction using Land Registry form RX3.

Ordinarily the Land Registry provides specific notification to parties with the benefit of a restriction confirming that an application to remove a restriction has been submitted. In these circumstances we have agreed with the Land Registry that specific notification to the landlord will not be required as they will have entered into the deed of variation and executed the memorandum of final staircasing.

In the case of a house pre-final staircasing, the restriction protecting the right of pre-emption is only registered against the title to the property after final staircasing and the transfer of the freehold to the former leaseholder. There will therefore be no requirement to remove a restriction from the title relating to the Landlord’s rights of pre-emption where the leaseholder has not acquired a 100% interest in the property

In the case of a house post-final staircasing, the former shared owner’s Form RX3 would need to be supported by the former landlord in providing evidence of their support to the application.

OR

An individual application by the former landlord (or their successor) could be made to withdraw the restriction. This application would be made on Form RX4 (section 47, Land Registration Act 2002 and rule 98, Land Registration Rules 2003.)

Currently no Land Registry fee would be payable in either case.

5.3.29 Leasehold Repurchase

Please note that this is not the same as Flexible Tenure.

Flexible Tenure and Leasehold Repurchase

Flexible Tenure or downward staircasing involves the re-purchase of some or all of the equity from the existing shared owner. Following flexible tenure the shared owner or former shared owner (tenant) continues to live in the property either owning a smaller share and paying a higher rent or simply paying rent as a sitting tenant.

By contrast, Leasehold Repurchase (other than in the circumstances outlined in section 7.4.2) involves buying all of the current leaseholder’s share of the property because they need to move and the provider is unable to find another household in housing need who can afford to purchase the current leaseholder’s equity.

The difference is that in Flexible Tenure the intention is the leaseholder remains in the property, whereas under Leasehold Repurchase, the leaseholder vacates the property.

The right of first refusal / first option to buy is when someone who has staircased to 100% is required by a clause in their Shared Ownership lease (or freehold transfer) to firstly offer the originating landlord the option to buyback the property before selling on the open market.

5.3.30 The landlord may offer to repurchase the lease where the following conditions are satisfied:

• The property was grant funded
• The Shared Ownership lease was issued after April 2006 and contains a clause giving the landlord an option to indicate whether it will consider buying back the property
• Where the leaseholder has not staircased to 100% but is required to move - for example the property is no longer suitable for the leaseholder’s needs, or the leaseholder’s employment requires a change in location

5.3.31 Where a provider considers repurchasing under the above conditions they can use their own resources or their Recycled Capital Grant Fund (RCGF) if resources are available. The usual RCGF rules will apply to the subsequent sales receipts.

5.3.32 Providers can offer to sell the lease on current Shared Ownership terms at a lower percentage to make the property more widely affordable. For example, the original leaseholder held a 60% share, but the provider nominee could only afford to purchase a 40% share.

5.3.33 Rural schemes: Leasehold repurchase option

(See section 8 below)

This product is the same as Shared Ownership, except that its provisions extend beyond the time when the leaseholder staircases to full ownership and covers when the shared owner wishes to sell the property. It enables providers to repurchase the property from the outright owner (at full market value) in order to resell it on a Shared Ownership basis to another local person in housing need.

5.3.34 This scheme only applies in settlements with a population of up to 3,000, and to leaseholders who were granted a Shared Ownership lease prior to 7 September 2009 when the requirement to issue Designated Protected Area Shared Ownership leases was introduced (please see section 1.4.17 and section 9 below).

5.3.35 This ensures that grant funded low cost housing in rural areas, where the provision of replacement housing can often be difficult, is able to be retained for the benefit of local people.

5.3.36 Homes England will endeavour to make grant funding available to fund rural repurchases where the homes are required to remain affordable in perpetuity, only when all other funding options have been explored and exhausted by providers.

5.3.37 Resale nominations — general guidance

5.3.37.1 Where a shared owner who has less than 100% of the equity in their property is looking to sell their share, the terms of the lease require them to offer the property initially to qualifying applicants nominated by the provider. The time a provider has to nominate a buyer or opt to take a surrender of the lease (known as the ‘nomination period’) is set down in the lease. For homes provided through the SOAHP 2016 to 2021 and previous programmes this will normally be 8 weeks. For Shared Ownership homes provided through the AHP 2021 to 2026 this has been reduced to 4 weeks.

5.3.37.2 Providers must publish clear, transparent information about resales and the valuation process on their website, including in accessible formats when requested.

5.3.38 Resales outside of the nomination period

5.3.38.1 If the provider is unable to nominate a suitable buyer within the specified nomination period as set out in the lease (and does not intend to take a surrender of the lease), under the terms of the lease, the shared owner will be able to sell the property on the open market at a price below, above, or the same as the independent RICS valuation. This also applies where the provider has waived their nomination period. In practice, this will often mean that the shared owner will perform a ‘back-to-back’ staircasing sale. That is, they will staircase to 100% ownership and sell the property outright to their buyer simultaneously. If the buyer only wants to purchase a share of the home they will need the provider’s permission, which should only be given where the buyer meets Homes England’s Shared Ownership eligibility criteria current at the time of purchase.

5.3.38.2 Where a home is sold above its RICS valuation outright outside of the nomination period through a back-to-back staircasing transaction then the value that the provider receives for the staircasing element should be based on the RICS valuation of the home as per the staircasing schedule in the lease. 

5.3.38.3 Where a home is sold on the same back-to-back staircasing basis but below the RICS valuation then the provider may receive its share for the staircasing transaction based on the RICS valuation in the same way. It is expected, however, that providers will avoid this scenario wherever possible especially where it would result in significant financial detriment to the shared owner. Providers should, for example, consider the reason(s) the shared owner has been unable to achieve the sale price at the market value established by the RICS valuation. If the shared owner has been attempting to sell at the RICS valuation for a long period and has not been able to secure a buyer, this may indicate that the valuation is not reflective of current market conditions.

5.3.38.4 In this scenario, providers may wish to accept the incoming buyer’s mortgage valuation if a copy is able to be obtained and has been undertaken by a RICS registered valuer. If another valuation is required, a desktop re-valuation will likely prove more cost effective than another in-person valuation. When requesting a desktop re-valuation, the provider should look to offer further information on other similar recent sales in the shared owner’s building, other developments where they have similar shared ownership homes, or the wider local area (via information from commercial sales portals and similar). 

5.3.38.5 To save on potential expense for the shared owner, there is no need to obtain an updated valuation every three months once the original valuation has expired. Instead, an updated valuation should only be sought once a buyer has been identified and there is some reassurance that the sale will proceed.  

5.3.38.6 Where a home is sold on Shared Ownership terms outside of the nomination period, the lease does not specify a price at which the home should be sold. Therefore, a RICS valuation is not required to comply with Homes England’s guidance, where the shared owner intends to sell their share only. Where the home is to be sold via a back-to-back staircasing transaction, a RICS valuation is required under the terms of the lease to establish the value of the staircasing element of the transaction.

5.3.38.7 For homes where the existing share is being sold outside of the nomination period and where the buyer is purchasing with a mortgage, providers may consider their own requirements for approving a mortgage for the purpose of the Mortgagee Protection Clause. This should balance reducing any unnecessary cost or administrative burdens for the shared owner, with ensuring that the value of the equity in the home is sufficient to cover the mortgage obtained.  

5.3.38.8 Providers may wish to work on the basis that a mortgage lender will have carried out a valuation to confirm the purchase price as assurance of the value of the home for their purposes. Alternatively, where a provider requires additional assurance (for example, they have recent sales data to show the purchase price is out of line with expectations), they may wish to use the buyer’s mortgage valuation if it is made available. To reduce the cost burden on shared owners, providers should only seek a new RICS valuation where they have significant concerns based on recent sales evidence that the mortgage amount will not be covered by the shared owner’s equity. This may also take into account the provider’s minimum deposit policy where applicable.    

Additional guidance for homes affected by building safety issues

5.3.38.9 For homes affected by building safety issues, providers must ensure that the RICS valuer has all of the available information relating to this before they provide a valuation. If a sale is able to be secured within the nomination period then the normal lease provisions will apply.

5.3.38.10 The latest guidance — Valuation approach for multi-storey properties with cladding 2nd edition — published by RICS in December 2023 helps valuers to value properties in buildings 11 metres and above with cladding, particularly where a developer has confirmed they will cover the cost of the remediation work. A number of major mortgage lenders (banks and building societies) have also signed a industry statement on cladding, that sets out when they will consider mortgage applications on affected flats, even before remediation plans are in place.

5.3.38.11 In cases where it is difficult for buyers to obtain a mortgage, a shared owner may wish to consider offers from cash purchasers as a way to avoid any lending obstacles.

5.3.38.12 Where the nomination period expires without a sale agreed, providers must consider the alternative options available to the customer. Further information on these options can be found within the Capital Funding Guide at:

• Subletting — sections 5.3.25
• Back-to-back staircasing transactions
• Repurchase of the shared owner’s equity by providers using their Recycled Capital Grant Funds — see chapter 7, section 6.3.2

5.3.38.13 Where a back-to-back staircasing transaction is to be carried out, providers are expected to ensure that the shared owner is not adversely affected where they are only able to secure a sale below the initial RICS valuation In these cases, providers should proactively work with the shared owner to obtain an up-to-date RICS valuation at minimal cost which accurately reflects the value that a buyer is willing, or able, to purchase the property for.

5.3.38.14 For example, providers may use the incoming buyer’s valuation if they are able to obtain a copy of this and it is signed by a RICS registered valuer. Alternatively, a desktop re-valuation could be sought, ensuring that the valuer has sufficient information about the inability to find a buyer at the previous valuation due to building safety issues. This is essential to enabling the staircasing element of the back-to-back staircasing transaction to occur at the most accurate value.

5.3.38.15 We know that, on average, sales involving homes affected by building safety issues can take longer to agree. As per paragraph 5.3.38.5 valuations do not need to be updated throughout the sales process and providers should not require this. An updated valuation should only be obtained when a buyer has been identified and there is some assurance that the sale will be able to proceed.

5.3.39 Further guidance on resales

5.3.39.1 It will be for providers to satisfy themselves that resales have been conducted in accordance with the terms of the lease.

5.3.39.2 Leaseholders may have concerns about their financial capacity to undertake back-to-back staircasing sales. Homes England anticipates that providers, or the leaseholder’s conveyancing solicitor, will be able to provide guidance and advice to those shared owners on the mechanics of such sales.

5.3.40 Service charge clauses

5.3.40.1 Homes England recognises that the form of wording used in the current model leases will not be appropriate in all circumstances. Whilst we no longer require the service charge clause as worded in the model leases to be one of the fundamental clauses, the inclusion of a service charge within the lease is still a condition of grant.

5.3.41 In light of this, for leases issued on or after 22 October 2010, the provider is permitted to make such amendments to the model clause (and the related definitions) as are required to reflect the requirements of the individual development. It will be for providers to ensure that the form of service charge clause included in the relevant lease is compliant with the relevant statutory and regulatory requirements relating to service charges, and provides an appropriate mechanism to enable the landlord to recover its service charge costs.

5.3.42 If a provider wishes to alter the service charge clause in a lease granted before 22 October 2010, then they are able to do so without Homes England’s consent. However, the provider should ensure the lease remains compliant with the relevant statutory and regulatory requirements and must seek their own legal advice about changing leases retrospectively. The provider should also keep on file a record of when the change is made and the reason for the change.

5.4 Rural Provision

Please also see section 8.

5.4.1 Providers developing schemes as part of Homes England’s rural programme (settlements of up to 3,000 inhabitants or less, including rural exception sites) have been required to employ one, or both, of the following options:

• To repurchase the property once the maximum share permissible has been acquired and the shared owner wishes to sell (see above guidance)
• To restrict the maximum level of equity that can be purchased to 80% on rural exception sites only (restricted staircasing)

Guidance

The restricted staircasing route is one of a number of options open to providers looking to develop Shared Ownership properties with grant on rural exception sites where the provider is required to retain the homes in perpetuity.

In deciding whether to use this option, providers need to be aware of local circumstances and the fact that, by being able to staircase to 100% equity, the purchaser gains access to a wider range of financial products to fund their purchase than they would with a restricted staircasing lease. The concerns of local planners and landowners should not be overlooked in arriving at a decision.

Providers have the option of retaining the properties in perpetuity through the Rural Repurchase scheme. Although the initial purchaser can staircase to 100%, under the buyback arrangements providers can offer the property back on Shared Ownership terms to another local household enabling them access to affordable home ownership. See section 8.1.1 below for funding arrangements for buyback and the circumstances in which grant may be available.

When using the above provisions providers have been required to include relevant clauses in the lease. Please note that where schemes in rural areas have been sold without staircasing restrictions, new Shared Ownership leases should allow 100% staircasing.

5.4.2 The Designated Protected Area regulations require landlords to include the clauses in their leases as detailed below.

5.4.3 Designated Protected Areas provision

Landlords developing schemes in Protected Areas as designated by the Housing (Right to Enfranchise) (Designated Protected Areas) (England) Order 2009 (SI 2009/2098), and as required by The Housing (Shared Ownership Leases)(Exclusion from Leasehold Reform Act 1967) Regulations 2009 (SI2009/2097), are required by Homes England to include the following conditions in their Shared Ownership leases:

• That the shared owner is able to acquire at least 80 per cent of the equity in the property
• Where the lease enables the shared owner to acquire more than 80 per cent of the shares in the property and the shared owner wishes to sell those shares, the shares must be sold to the landlord or its nominee
• That the sale must be at market value as prescribed in the regulations (Statutory Instrument 2009/2097)

Further guidance

The Housing (Right to Enfranchise) (Designated Protected Areas) (England) Order 2009 (SI 2009/2098) provides full details of the locations classified as having Designated Protected Area status. In the main these are settlements of less than 3,000 inhabitants and the same areas that are exempt from the Right to Acquire. They are also the same rural areas where local authorities may apply the rural exception site policy.

For full details of the order please refer to the Government’s Legislation website.

5.4.4 As indicated in section 1.4.18, whilst the regulations apply to houses, it is Homes England’s policy that both houses and flats will be included in its Designated Protected Area programme. Where the regulations refer to the term ‘houses’ this should be read to include flats for the purposes of the Designated Protected Area programme. When using the above provisions landlords must include relevant clauses in the lease or use Homes England’s model Designated Protected Areas leases (see section 11.2).

5.4.5 Providers intending to use the buyback option should consider mortgage lender requirements in drafting this clause, in particular the timescales. We will accept variation to that part of the clause if the lender reasonably requires it.

5.5 Older Persons Shared Ownership (OPSO)

5.5.1 In addition to the requirements listed above at 5.3, leases must:

• Be granted to a person aged 55 years or over. Providers must not consider any sale to a person younger than 55. The Housing Ombudsman Service has determined that sales to someone not meeting the age restriction must be regarded as a breach of the terms of the lease
• Restrict the maximum share to 75% of the open market value (either at initial sale or upon staircasing)
• Contain no rent provision where the maximum share of 75% has been acquired
• Make provision for access to person centred services to support individuals. Where no resident warden is available the lease must detail the service available to the leaseholder for obtaining emergency assistance. This may be provided by a peripatetic warden employed by the provider, a local authority or a private agency
• Restrict assignment to a person of or over the age of 55 at the date of assignment. Whilst it is not the intention to place a direct restriction on the identity of persons who may inherit the home, where the property is inherited by someone under the age of 55, the Permitted Use clause will prevent the property being used by that person unless they are a deceased leaseholder’s spouse or civil partner residing at the dwelling at the time of death. The restriction on assignment will equally apply to a mortgage company.
• Not provide for the leaseholder to acquire the landlord’s interest under an option to purchase and
• Contain a landlord covenant to provide the leaseholder with a list of duties included in the basic management fee and itemise and price those which are to be charged separately

5.5.2 For the SOAHP 2016 to 2021, Homes England did not produce a model lease for OPSO schemes. In order to address the points above it is recommended that the updated model leases for SOAHP 2016 to 2021 (published in September 2021) are used as the base document and amended as appropriate to incorporate the OPSO specific features of the new AHP 2021 to 2026 OPSO model leases (see section 11.2). This will include the deletion of the relevant schedules relating to the Initial Repair Period and 1% staircasing (Schedules 6 and 7 in the house lease and Schedules 8 and 9 in the flat lease).

5.5.3 All fundamental clauses as mentioned at section 5.2 must remain in the lease in the correct form, including the mortgagee protection clause, but other clauses (including those above) can be added to the lease to suit the scheme without reference to Homes England.

5.6 Self build Shared Ownership

5.6.1 Self build Shared Ownership homes should adhere to all of the same provisions and requirements of the Shared Ownership product covered elsewhere in this chapter.

5.6.2 All leases must be granted simultaneously after confirmation of final costs and values and the determination of the ‘sweat equity’ (i.e. the proportion of equity to be granted as a reward for the self builder’s labour).

5.6.3 For homes funded through the AHP 2021 to 2026, if the sweat equity amounts to less than 10% of the total value of a dwelling, self builders must purchase additional equity to have the minimum of 10%. If the homes are funded through the SOAHP 2016 to 2021 then the minimum will need to be 25%. If this is to be purchased with a mortgage the provider must check that the self builder can raise that mortgage and sustain it (see section 3 (applicant eligibility) and section 6 (affordability guidance).

5.6.4 A provision must be inserted into the lease as to the effect that it is a lease under which the tenant (or tenant’s personal representative) will, or may, be entitled to a sum calculated by reference directly or indirectly to the value of a house or dwelling.

5.7 Account year-end date

5.7.1 Within the flat leases, the account year is shown as ending on 31 March. Whilst this date can be varied to reflect the end of the landlords’ accounting year, a specified date must be included. There is no requirement for providers to consult Homes England before varying the date.

6. Affordability guidance

This section contains Homes England’s revised Shared Ownership affordability guidance effective from 1st August 2024. This was initially published on 17th May 2024 alongside the previous affordability guidance to provide a period of time for implementation.

6.1 General Principles

6.1.1 Providers should consider all Shared Ownership applications they receive in an impartial, equitable and consistent manner in accordance with Homes England’s guidance. They must ensure that no applicant is disadvantaged in their interpretation and application of the guidance. The ultimate responsibility for a decision on whether to accept an application rests with the provider.

6.1.2 Providers should publish clear information and policies in respect of how they consider Shared Ownership applications and the key factors taken into account in their decision making. Once a decision has been made on an application, the provider should be transparent and open in providing a suitably detailed and reasoned explanation to the applicant.

6.1.3 Shared Ownership applicants can expect their financial assessment to be carried out free of charge by a suitably qualified and experienced advisor that is regulated to give mortgage advice (referred to going forward as ‘the advisor’). Applicants are not obligated, however, to arrange a mortgage with the advisor undertaking their financial assessment.

6.1.4 Providers are required to offer the full range of applicable share percentages as determined by the relevant Shared Ownership model. The provider must ensure that the share level being purchased is suitable for the applicant’s affordability, needs, and circumstances as presented by the advisor, and be able to evidence this. Providers should follow the advice provided by the advisor in respect of all mortgage matters and should not undertake any activities for which they are not regulated (eg, giving financial advice).

6.1.5 Providers must ensure that applicants for grant funded Shared Ownership homes are considered on a first come, first served basis except where the Government has determined priority groups or locations.  The process by which providers will meet this condition of funding should be clearly set out and readily available to applicants and other relevant parties.

6.1.6 As grant funded Shared Ownership homes are benefiting from public money, providers as well as Homes England have a duty to ensure its best use. Applicants should be encouraged to purchase as large a share as is suitable based on their individual circumstances and affordability, taking into consideration any known or foreseeable changes in the future. Under no circumstances should any applicant be made or encouraged to overcommit themselves financially.

6.1.7 Providers are required to establish a surplus monthly income policy for applicants which sets out the minimum amount of money (in £ and / or percentage terms) that an applicant should have at the end of each month following the assessment of all elements of their income and expenditure.  A maximum amount should not be set as individual applicant circumstances need to be able to be accounted for.  The provider’s policy should be clearly set out and readily available to applicants and advisors.

6.1.8 If applicants are unable to obtain a mortgage, or there is no appropriate mortgage product available but they have sufficient savings, then they can purchase their share in cash.  As with all other applicants, they should be referred to an advisor to confirm that they are either unable to obtain a mortgage or that a suitable mortgage is not available. It will be for providers to determine the suitable share to be purchased, and to ensure that cash purchase applicants are not disadvantaged in any way in their assessment and decision making.

6.1.9 Whilst applicants are expected to use any savings, assets, investments, etc, in their purchase this does not mean that they are not permitted to retain a level of savings. This should take into account the requirements of any mortgage that is able to be arranged, the minimum income policy of the provider (see paragraph 6.1.7 above) and the individual circumstances of the applicant. There is no prescribed level of savings that an applicant can retain as this will vary according to individual circumstances.

6.1.10 In respect of applications for resale Shared Ownership homes, whilst providers should aim to follow the same principles of Homes England’s guidance as for new sales, they are able to operate with more flexibility in their consideration of applicants to ensure that existing shared owners are not restricted in terms of potential purchasers. 

6.1.11 Where providers wish to seek clarification on any of this affordability guidance then they should contact Homes England at [email protected]. 

6.2 Establishing applicant eligibility and priority

Applicant eligibility

6.2.1 Providers are responsible for determining an applicant’s eligibility for Shared Ownership (see section 3) and for making the final decisions on whether to accept an applicant, subject to the principles set out in section 6.1 above.

6.2.2 Providers may outsource the verification of eligibility to an external individual / organisation, but where this is done the provider will remain fully accountable for the assessment of an applicant’s eligibility. Where outsourcing is agreed a provider should ensure that they undertake due diligence and have appropriate written agreements in place regarding data sharing together with some form of Service Level Agreement.

6.2.3 Through whichever route an applicant’s eligibility for Shared Ownership is determined providers should ensure that a full record of each decision made is kept on file for Homes England Compliance Audit purposes.

6.2.4 More detail on the applicant eligibility criteria for grant funded Shared Ownership homes is provided in section 3 of this Capital Funding Guide chapter.  Please also refer to section 6.6 below on issues and factors relating to the calculation of a household’s income.

Applicant priority

6.2.5 Where the demand for Shared Ownership homes exceeds supply providers are required to consider applicants on a first come, first served basis.  This principle was established by Government and has been in place since 2016. As such it represents a condition of Homes England’s funding for Shared Ownership homes.

6.2.6 The Government has identified specific exceptions to the above in relation to qualifying Military of Defence personnel and protected sites or areas where priority is able to be given to applicants with some form of local connection.  See section 3.2 for more detail on these exceptions.

6.2.7 It is for providers to determine how this is best achieved but any prioritisation of applicants should not be influenced by the share that an applicant is able to afford.  All applicants that have been assessed as affordable for the minimum share available and align with the provider’s policies (see section 6.4) should be considered according to their priority as determined by the first come, first served requirement.

6.2.8 On most developments where there are multiple Shared Ownership homes for sale it is expected that they will be sold across a range of equity shares.  Although providers may have a ‘target’ average equity share across the Shared Ownership homes on a scheme for development economic reasons the first come, first served requirement set out above for eligible applicants that are able to afford the minimum share must be met. 

6.2.9 For clarity, applicants who are only able to afford lower shares should not be excluded or moved to a lower priority because of this, and any ‘target’ average share should not be considered as the minimum share that can be purchased.  Similarly, providers should not adopt an approach where they consider an applicant purchasing a lower share then has to then be balanced by another applicant buying a higher share if this is in breach of the first come, first served prioritisation of applicants.

6.2.10 The above does not prevent providers from advertising illustrative shares above the minimum that is available, but it should be made clear in any marketing or advertising that this is for illustration purposes only (for example, to give an indication of the cost of purchase, rent, etc) and not the minimum that is available for purchase.  Note this is in relation to the sale of new Shared Ownership homes.  For resales there is a minimum share that is available for purchase, this being the share held by the seller at which the home can be marketed and advertised (see paragraphs 6.7.14 to 6.7.16 for further guidance on resales).

6.3 The use of professional advisors

6.3.1 Whether an applicant is able to obtain a mortgage and, where they can, the amount that they can suitably afford must be assessed by a qualified and experienced advisor who is regulated to give mortgage advice. Due to the specialist nature of Shared Ownership mortgages, the advisor should be experienced in, and knowledgeable of, this area and have access to a range of Shared Ownership mortgage lenders.

6.3.2 Providers may establish a panel of one or more advisors to undertake affordability assessments for mortgage purposes. 

6.3.3 Providers should undertake checks on the advisors they use to carry out these affordability assessments and retain evidence of their suitability. The check should cover as a minimum that the advisor satisfies the following criteria:

• is regulated and qualified to give mortgage advice
• has a good working knowledge of Shared Ownership
• has access to a suitable range of Shared Ownership mortgage lenders in order to give an accurate assessment of mortgage availability
• has read and understood section 3 and this section 6 on ‘Applicant eligibility’ and ‘Affordability guidance’
• has read and understood any individual provider’s policies which may apply to the assessment of an applicant’s eligibility and affordability.

6.3.4 Where a provider has a preferred advisor or operates a panel of advisors, they should ensure that regular reviews as to their suitability are undertaken.  The frequency of such reviews is for the provider to determine.

6.3.5 If an applicant seeks mortgage advice from an advisor that is not on the provider’s panel, then it will be at the discretion of the provider as to whether they are willing to accept this.  This will be dependent on their knowledge of the advisor in question and their view on the extent to which they meet the criteria set out in paragraphs 6.3.1 and 6.3.3 above.  If a provider has any doubts they can refer an applicant to an advisor on their panel for another assessment, provided the rationale for doing this is clearly explained to the applicant and it is undertaken at no cost to them.

6.3.6 Note that the above scenario may be more likely to arise for the resale of a Shared Ownership home outside of the nomination period where the provider has less control over the sale process if the seller is using an external agent.  In such circumstances providers can consider a more flexible approach to avoid any barriers for existing shared owners in selling their home,

6.3.7 Providers must not require that an applicant takes out their mortgage through a particular advisor, irrespective of whether they undertook the financial assessment to ascertain a suitable mortgage level or product(s).  Also, they may not receive financial (or other) incentives from advisors in return for inclusion on their panel.

6.3.8 Providers may wish to formalise the relationship with their preferred advisor or panel of advisors by way of a written agreement. This is likely to apply particularly where providers are outsourcing document collection or Anti-Money Laundering (AML) checks for instance.

6.3.9 Providers must not override or unduly influence any of the views put forward by an advisor as to the suitable mortgage for an applicant which is then used to derive the share purchase. Examples of this would include a provider requesting that a particular mortgage term or lower mortgage rate is chosen to increase the share an applicant can purchase, or to advise an applicant to restructure their debts, suggesting changes to their pension, etc. Providers should not be undertaking any activities for which they are not regulated.

6.3.10 This does not, however, prevent discussions between a provider and an advisor around the correct application or interpretation of their published policies, or requests for further information to explain the suitable mortgage amount or product if this has not been sufficiently explained in their view.

6.3.11 Advisors should ensure that applicants are informed where any view or piece of advice they give does not fall under their regulated activities.

6.4 Provider specific policies

6.4.1 There are two policies (as below) that Homes England requires providers to publish for Shared Ownership homes either in receipt of grant funding and / or forming part of one of its Affordable Homes Programmes. 

a) A first come, first served policy for the prioritisation of eligible applicants (see section 6.2 for more detail)

b) A monthly minimum surplus income policy for applicants. This relates to the minimum amount of surplus income – expressed in monetary and / or percentage terms - that an applicant should have available per month after accounting for all of their housing costs, other commitments and expenditure as established by their budget planner.  Note providers should not adopt a maximum surplus income policy / amount in order to be able to account for the individual circumstances of applicants  (see paragraphs 6.1.7 and 6.4.9).

Further guidance on a minimum monthly surplus income policy

Section 6.7.8 sets out more detail on the methodology for arriving at an applicant’s monthly surplus income (steps 1 to 7) which forms part of Homes England’s revised methodology for assessing the share that an applicant can afford.  Where a monthly surplus income policy is based on a minimum percentage then this percentage figure should be based on the net income available for mortgage purposes which is derived from the below calculation.  Similarly, a monthly surplus income policy based on a minimum monetary value should use the same calculation.

• (A) Gross income
• (B) Less gross deductions (tax, National Insurance, student loan, etc)
• (C) Less known commitments (loans, credit cards, childcare, etc)
• (D) Less housing costs of the Shared Ownership purchase (rent and service charges)
• (A – B – C – D) = income available to support a mortgage, other essential expenditure (identified through a budget planner) and to meet the provider’s surplus income policy

It will be for providers to determine the monthly surplus income policy level(s) for applicants based on their knowledge of household incomes and the costs of living in their areas of operation. It would not be unreasonable to expect providers to adopt different minimum surplus income requirements depending on their size, level of risk, geographical area of operation, the household size / composition of applicants as well as their broader knowledge and experience of Shared Ownership.

6.4.2 In addition to the requirement above, providers may adopt other policies for Shared Ownership applicants provided these do not conflict with Homes England’s general principles relating to the assessment of an applicant’s affordability (see section 6.1 above).

6.4.3 All policies adopted by a provider must be published on their website and be made available in other accessible formats as required. Applicants and advisors should be signposted to all relevant policies and information relating to the assessment of Shared Ownership applications. 

6.4.4 In establishing their policies providers must ensure they do not disadvantage groups with protected characteristics. For example, providers should not adopt policies which penalise applicants who are reliant on income from benefits (in part or in whole), nor policies that discriminate against applicants based on their visa or residency status (see section 3.6).

6.4.5 Any policies must be based on an assessment of risk by the provider and internal records should be retained of the rationale for the policies adopted.  The range of policies adopted by providers could, for example, be influenced by their size, geography, household size / composition and knowledge and experience of Shared Ownership.

6.4.6 Aside from the above, providers are free to establish their own policies as they see fit.  Examples of further policies a provider may wish to adopt would be a policy on minimum deposit requirements, or an adverse credit policy.

6.4.7 It is recommended that providers review their policies as they see fit and update and re-publish them as required.  It is for providers to determine the frequency of any such review.

6.4.8 There are some aspects of the assessment of an applicant’s affordability that we would not expect providers to establish a rigid or blanket policy for (eg, absolute maximum limits) to avoid potentially disadvantaging some applicants or resulting in an unsuitable share purchase outcome.  The individual circumstances of applicants should be taken into account in any assessment.

6.4.9 For example, providers should not create a blanket policy relating to the prescribed amount of savings that an applicant is permitted to retain after their purchase, or establish a maximum monthly surplus income an applicant can retain (see paragraph 6.4.1 b) above). However, we would consider it reasonable for a provider to have an indicative amount or percentage above which they would require additional information from the applicant in order to make a judgement.

6.5 Principles of the affordability assessment process

6.5.1 Providers should take a proportionate approach to affordability assessments to ensure there is not an overly onerous process for applicants and advisors where demand exceeds supply. For example, this could be achieved by using a two-stage process (see section 6.5.11 below) or limiting the number of applicants referred for assessment per home available, or a combination of both.  The approach adopted may depend on the size of a development and / or the level of demand for the Shared Ownership homes.

6.5.2 Where there is excess demand for Shared Ownership homes providers and advisors should agree the appropriate methodology or process for dealing with applicants.  Applicants should be informed up front of how the process will work.  

6.5.3 Homes England suggests that a two-stage approach is adopted by providers and advisors as set out below though this is not a requirement.  For example, a provider may have a one applicant per plot process for dealing with applicants in which case it is more likely and proportionate for any assessment to be done in one stage.  Whichever approach is taken the provider needs to ensure that the fundamental requirement that applicants are prioritised and dealt with on a first come, first served basis is met (see ‘Applicant priority’ in section 6.2 above). 

6.5.4 An applicant’s assessment should be provided free of any charge to them irrespective of the assessment approach taken.  An exception to this may be where a cash purchase applicant wishes to seek advice from a professional financial advisor (see paragraph 6.10.6).

6.5.5 Whilst Homes England has withdrawn its own indicative affordability calculator, there is nothing to prevent advisors and providers using their own tools to give applicants an initial indication of whether they are likely to be able to proceed.  For example, a simple calculator tool could be used to indicate that an applicant is likely to be able to afford the minimum share available, or to give an indication of the share, or range of shares, that might be affordable.

6.5.6 Where a calculator tool is used to give an initial indication, it is important that any limitations are understood, and that the interpretation of results from this does not exclude or disadvantage certain applicants. For example, those who are only able to afford a smaller share, have income that could be considered non-standard, or applicants that may potentially be on, or close to, the borderline in terms of their affordability. As such simple affordability calculator tools are unable to give a definitive answer as to the share that an applicant will be able to afford, the results should not be used to prevent applicants from accessing a full and more detailed affordability assessment if they wish to.

6.5.7 For clarity, where such a calculator is used to provide an initial indication of an applicant’s affordability, this is not the same as the more definitive calculator that an advisor may develop to align with Homes England’s required methodology for deriving the suitable share that an applicant can comfortably afford (see section 6.7).

6.5.8 With regard to any element of the assessment of Shared Ownership applicants, providers must take steps to ensure that their employees do not undertake activities or have discussions for which they are not qualified or regulated to be involved in.

6.5.9 Although the final decision on whether to accept an applicant lies with the Shared Ownership provider taking into account all the information available, a provider should not challenge or override the outcome of the advisor’s assessment of the suitable mortgage product / level that an applicant can afford (see section 6.7). All decisions taken by providers should ensure that an applicant’s individual circumstances have been fully taken into account, and that no applicant has been unduly disadvantaged.  

6.5.10 Providers should ensure that appropriate records and documentation are kept in order to satisfy Homes England’s Compliance Audit requirements. Although the sign off sheet (see section 6.8 below) will be a fundamental requirement this should not be at the exclusion of other relevant documentation that has formed part of the decision-making process.

6.5.11 Example of a two-stage affordability assessment process

Below is an outline of how a two-stage approach to assessing the affordability of applicants and the suitable share they could purchase might operate.  It is not a requirement to adopt this suggested two-stage approach if the provider and advisor are satisfied that their processes are such for dealing with applicants that the more detailed assessment as set out in Stage 2 can, in effect, be the starting point. Any process adopted needs to ensure that no applicant is disadvantaged in any way and that the requirement to deal with applicants on a first come, first served basis is not compromised.

6.5.11.1 Initial assessment (Stage 1)

This initial assessment stage would be a high-level check that an applicant:

a) is likely to be able to purchase the minimum share for new Shared Ownership homes (or the share being sold on resales) and;

b) meets the relevant provider’s policies in relation to the selling of Shared Ownership homes (see section 6.4).

It will be for advisors to determine the information required and the method / tool used to undertake this initial assessment, assisted by the provider as necessary.  For example, a simple indicative affordability calculator tool could be used for this initial stage as described in paragraphs 6.5.5 to 6.5.7 above.  It is not expected that the information required to undertake this initial assessment will be anywhere near the level of detail needed to complete a full budget planner which will be done as part of the ‘Stage 2’ assessment.

Where there is any doubt, or where an advisor does not feel comfortable arriving at a view about a) and b) above based on the information available at this initial stage, then they should err on the side of caution and allow the applicant to proceed to the next stage for more detailed checks.

Where an applicant is rejected at this initial Stage 1 then the advisor should provide a thorough explanation to the provider to enable them to communicate the outcome to the applicant. Providers should be aware that there may be exceptional instances (for example if fraud or money laundering is suspected) when an advisor may not be able to communicate the reason for decline.  

Homes England has made available a simple initial assessment (Stage 1) sign off sheet requiring minimal information which can be used to formalise outcomes at this point.  However, it is not a Homes England requirement to use this form.  Providers and advisors can agree to use either a modified version of this form or some other means of communicating the outcome of assessments at this initial stage.

6.5.11.2 Full assessment (Stage 2)

Once an applicant has passed Stage 1, they proceed to Stage 2 which is the more detailed assessment of their income and expenditure, their circumstances and preferences including any known or likely future changes that will impact on their income and / or expenditure.  This more detailed assessment will involve a budget planner.

The purpose of this stage is to arrive at a share purchase that is suitable for the applicant in terms of their affordability and sustainability (including any known future changes); one which will not unduly overcommit them financially based on the information available at a point in time; and one which fits with the provider’s minimum surplus income policy and any other policies as relevant (see section 6.4).

More detail on the methodology that should be adopted to achieve this is set out in section 6.7.

It is expected that advisors will use their knowledge and experience of Shared Ownership to determine the best method of achieving this, including any appropriate tools (such as a budget planner), and knowledge and understanding of mortgage lender and provider policies as appropriate.

In carrying out their assessments advisors should consider any relevant mortgage lending criteria and policies, as well as taking into account the individual circumstances of applicants and ensuring that all are treated in a fair and consistent manner.  They should also be aware of, and take into account, any specific policies or information made available by providers (see section 6.4) that will help them in their assessment of an applicant.

Advisors will need to be aware of the approach taken by providers in meeting the Government’s requirement that Shared Ownership applicants are considered on a first come, first served basis (excepting the priority for qualifying Military of Defence personnel, National Parks, Areas of Outstanding Natural Beauty and rural exception sites – see section 3.2 for more detail) and undertake assessments accordingly.  However, the responsibility of meeting this Government requirement lies solely with the provider, not the advisor.

6.5.12 Once an applicant’s affordability has been determined the advisor should complete a sign off sheet (see section 6.8 for Homes England’s minimum requirements) summarising the outcome of the assessment.  This sign off sheet should then be sent to the provider including any explanatory notes as deemed necessary by the advisor.  If the provider needs any further clarification regarding the advisor’s assessment, then it would be raised at this point.

6.6 Assessing an applicant’s income and expenditure

6.6.1 The principles to be applied to the calculation of the gross household income against the £80,000 threshold can be found in section 3.4 of the ‘Applicant eligibility’ section.  This also includes potential exemptions or adjustments that should be made to this calculation.  However, advisors should use their knowledge and experience of lender policies and approaches in this area.  Any view or advice on this should be shared with the applicant and provider, with the methodology clearly documented for the benefit of all parties.  For the provider this will be required for any future audit purposes as it is they who are ultimately responsible for determining and demonstrating an applicant’s eligibility based on the information from the advisor.

6.6.2 In line with the principle set out in paragraph 6.1.1 above, applicants in receipt of benefits are not precluded from applying for Shared Ownership.  The decision as to which benefits, or proportion of benefits, should be taken into consideration as part of their assessment rests with the advisor based on their knowledge of relevant lender policies.

6.6.3 The same applies to other applicants such as those who are self-employed or on zero hours contracts.  Provided that they are able to satisfy the certification requirements regarding their income in line with what is accepted by lenders for mortgage purposes, then they should not be disadvantaged in being able to access Shared Ownership.

6.6.4 More generally, advisors should use their knowledge of the wider policies and approaches taken by mortgage lenders as regards acceptable income requirements when carrying out their detailed assessments.

6.6.5 It is expected that a detailed budget planner will be completed by advisors setting out an applicant’s income and expenditure which will then be used to assist in determining their suitable share purchase. This should take on board, and be viewed alongside, any relevant provider policies (see section 6.4 above) together with any preferences expressed by the applicant as considered relevant.  It will be for the advisor to determine the extent and level of detail of the information required from applicants for such purposes.

6.6.6 Where an applicant has known financial commitments in the future then these should be taken into account in the advisor’s assessment of the share that can be comfortably afforded.  Examples of such things would include childcare costs, the purchase of a vehicle or equipment for work purposes or supporting a child in full time education or training.  This is by no means an exhaustive list of potential commitments that it might be prudent to include.  The key is for applicants to be open and honest as regards any future changes to enable the suitable share to be identified that will not overcommit them financially in the future.

6.7 Assessing the suitable share to be purchased

6.7.1 A different approach should be taken between the sale of new Shared Ownership homes and resales.  For more information on resales please see paragraphs 6.7.14 to 6.7.16 below.  All affordability assessments should be conducted according to the principles established (see section 6.1), and the detailed assessment by a qualified, regulated and experienced advisor (see section 6.3).

6.7.2 Although the final decision on a Shared Ownership purchase continues to rest with the provider, their decision on the suitable share amount that an applicant can comfortably afford to buy needs to be based on the assessment of an appropriate, affordable mortgage undertaken by the advisor.  These assessments should not be challenged by providers as they are not qualified or regulated to do so, though clarification can be sought if necessary.

6.7.3 Homes England’s calculator previously made available to give an initial indication of an applicant’s affordability and the share that could potentially be purchased has been withdrawn.   Similarly, the previous guidance relating to the housing costs (mortgage, rent and service charge) to net mortgageable income of an applicant ideally being between 25% and 45% has also been withdrawn, (see the Stage 1 assessment at section 6.5.11.1 above).

6.7.4 The previous calculator and thresholds have been replaced by a Homes England requirement for advisors to adopt a methodology based on the detailed assessment of an applicant’ income and expenditure combined with the provider’s minimum surplus income policy (see section 6.7.8 below).   Advisors will also need to take into account any other policies established by the provider (see section 6.4) that may impact on the mortgage level and product that will be suitable for an applicant. 

6.7.5 It will be the information from an applicant’s completed budget planner that will form the basis of the information to be used in the step-by-step methodology set out in section 6.7.8, alongside the provider’s minimum surplus income policy.  Information from this assessment will be used to complete the sign off sheet (see section 6.8) which will represent formal confirmation of the outcome of the assessment.

6.7.6 The basis of the revised methodology is to ensure that the mortgage an applicant is able to secure represents no more than 30% of an applicant’s net income after accounting for what are considered firm expenditure commitments and the rent and service charge (as applicable) costs of the Shared Ownership purchase. This providing that the applicant also meets the provider’s minimum surplus income policy. The 30% threshold may be exceeded where an advisor feels that there is sufficient justification for doing so, and provided that the applicant is still able to satisfy the provider’s monthly surplus budget policy.

6.7.7 To mirror the information provided in the ‘Summary of costs’ Key Information Document (KID) the rent used in the assessment should be ‘stress tested’ over a 5-year period.  The annual rent increases presented in the KID are 6% for RPI-based leases and 5% for CPI-based leases.  For example, if the initial rent is set at 2.75% of the unsold equity, then for a CPI-based lease applying 5% increases over 5 years results in a stress test rent level of 3.51% of the unsold equity (3.68% for RPI-based leases).

6.7.8 Summary of methodology for assessing applicants

(A more detailed presentation of the methodology and data examples can be found in the attached budget planner guidance note)

Step 1 – gross household income (A)

Step 2 – deductions from gross income (B)

Step 3 – known commitments (C)

Step 4 – housing costs (excluding mortgage) (D)

Step 5 – net income remaining for mortgage purposes (E = A – B – C – D)

Step 6 – mortgage cost (F = no greater than 30% of E - see paragraph 6.7.6 above)

Step 7 – other essential expenditure (G)

Step 8 – provider’s minimum surplus income policy (E – F – G must be greater than this)

6.7.9 Homes England is not providing a standard calculator as these assessments must be undertaken by an advisor qualified and regulated to provide mortgage advice. Advisors may devise their own tools as needed dependent on their knowledge and experience of requirements.

6.7.10 As per the principle set out in paragraph 6.1.6, to ensure the best use of public subsidy applicants should purchase as large a share as is suitable based on their individual circumstances. In cases where an applicant wishes to purchase a lower share than the above methodology results in, the advisor should record this on the sign off sheet including any reasons put forward by the applicant for wanting to retain a higher level of their disposable income or savings.

6.7.11 In such cases, on receipt of the sign off sheet it will be for the provider to take a view as to the extent to which the applicant is able to evidence or justify their reasons for wanting to purchase a lower share than has been established by the advisor’s mortgage assessment.  If the provider believes that the applicant does not have an evidenced and / or justifiable rationale, then providers are able to decline the applicant’s preferred share purchase amount. Whatever the outcome the provider should record details of these conversations on the sign off sheet.

6.7.12 Applicants must be permitted to retain a reasonable level of savings for emergencies, as well as to cover known foreseeable events to avoid them becoming overcommitted financially.  Providers may wish to refer to Money Helper for more information and advice on savings.

6.7.13 To clarify, if an applicant wishes to purchase a greater share than that determined by the advisor’s assessment, and where this does not fit within a provider’s surplus monthly income policy, then this request can be rejected.

Resales

6.7.14 The above guidance on the share to be purchased is primarily for the initial sale of Shared Ownership homes. For resale homes, Homes England does not wish to cause any barriers to existing shared owners being able to sell their homes. As such providers should follow the principle set out in paragraph 6.1.10 above.

6.7.15 For resale homes it should still be considered by providers and advisors as to whether it is affordable and in the interest of the applicant to buy a larger share in the home than is being sold. Providers should facilitate further share purchases (staircasing) at the same time as resales wherever possible to reduce any costs to the purchaser associated with staircasing in the future, as well as the level of rent to be paid.  However, this is an option for resale purchasers rather than a requirement.  Providers and advisors should therefore not push a purchaser into doing this but are able to suggest this to them if their affordability assessment and circumstances mean this is a possibility.

6.7.16 All applicants for Shared Ownership resale homes should be referred to an advisor for a financial assessment in the same way as applicants for new Shared Ownership homes as set out above.  Similarly, the same guidance and requirements apply to resales regarding consideration of an applicant’s individual circumstances, any policies of the provider in relation to eligibility and affordability, undertaking of the two-stage assessment process if appropriate, and completion of a sign off sheet.

6.8 The sign off sheet

6.8.1 Where an applicant has undergone a full affordability assessment by an advisor the outcome in terms of their affordability, advice on the suitable share to be purchased and any associated information should be included on a sign off sheet.  For each applicant that is assessed by an advisor providers should receive a fully completed sign off sheet providing key information relating to the applicant and the outcome of their affordability assessment.

6.8.2 To clarify, Homes England considers the equivalent of its suggested Stage 2 (as set out in section 6.5.11.2 above) as being a full affordability assessment where a sign off sheet is required.  If an initial assessment is carried out which is similar to Stage 1 (see section 6.5.11.1 above) then a sign off sheet is not a Homes England requirement, although we have provided an example of what one could look like.  It is for advisors and providers to agree the process and methodology for capturing and communicating the necessary information for any Stage 1 assessment.    

6.8.3 Homes England has produced a template which contains the minimum information that a sign off sheet for a full, Stage 2 affordability assessment needs to include.  Providers and advisors are free to add further information, boxes, etc, as they see appropriate and to include any branding as desired.  Alternatively, where advisors and providers already have a sign off process in place then any existing forms, etc, can be used provided that all the information contained within Homes England’s template sign off form is included.

6.8.4 The declarations on the sign off sheet templates are only examples provided by Homes England to illustrate what wording such a declaration might contain.  Providers and advisors are free to determine their own wording as they think appropriate to satisfy themselves that they are meeting their regulatory obligations as regards the assessment undertaken.

6.8.5 The sign off form is intended as a formal record of the assessment that has been undertaken by the advisor.  We would advise that any detail used to arrive at the outcome such as the budget planner is appended to the sign off sheet, if not included within it currently.

6.8.6 For providers the sign off sheet appropriately completed and signed by the relevant parties will become the key Homes England Compliance Audit requirement to evidence the affordability assessment element of the Shared Ownership scheme audit process.

Sign off forms

• Sign off sheet guidance notes
• Initial assessment sign off sheet
• Mortgage buyer sign off sheet
• Cash buyer sign off sheet

Document signing and retention

6.8.7 For purchasers taking out a mortgage, this sign off sheet should be signed by the advisor, provider and applicant. 

6.8.8 The provider should keep a copy of the sign off sheets for a period of time sufficient to meet Homes England’s Compliance Audit requirements and in line with their own document retention policies.  Advisors should keep a copy for their records in line with their retention policy and / or any guidance from their regulatory body.   

6.8.9 Note that a wet signature on the sign off form, or a digital image of a signature, is not a Homes England requirement. An electronic signature is acceptable  which can be as simple as them typing their name into the form or, alternatively, an email confirming the applicant’s acceptance.

6.8.10 Where it is either not possible to get an applicant’s signature, the applicant refuses to sign the form or providers and /or advisors just want additional evidence that the applicant has provided their signature, then any record of the communication with the applicant relating to this should be kept.  This could be separate file notes, simply keeping copies of e-mails or other communication sent / received or any other relevant information that would meet an organisation’s own audit and record keeping requirements, as well as to meet Homes England’s Compliance Audit requirements.

6.9 Mortgages

6.9.1 Mortgage lenders should be authorised and regulated by the Financial Conduct Authority and, where required, regulated by the Prudential Regulation Authority.  It is not a requirement for an applicant to purchase a Shared Ownership home with the assistance of a mortgage if they are not able to secure one.  For more information on cash purchasers please see section 6.10 below.

6.9.2 Additionally, the Government does not believe that applicants should be prohibited from using unsecured lending to access Shared Ownership. However, such lending will not benefit from the Mortgagee Protection Clause as it is not secured against the home.

6.9.3 Applicants whose income derives predominantly from benefits may be unable to secure a standard mortgage. There are a small number of lenders who offer specialist mortgages for this client group. Where possible, such applicants should be referred to a specialist mortgage broker to discuss their options. The initial assessment must be provided free of charge and providers must not require that a mortgage is arranged through a particular broker.

6.9.4 More information for lenders and providers can be found in the Joint Shared Ownership Guidance. Please note that this is under continuous review.

6.10 Cash purchases

6.10.1 Cash purchasers should be assessed in accordance with the general principles set out in section 6.1, in particular that they are assessed according to their individual circumstances.  Such applicants should still be referred to an advisor the same as other Shared Ownership applicants.  However, the primary role of an advisor for cash purchasers is to confirm the lack of availability and / or suitability of a mortgage for the applicant. 

6.10.2 Applicants may purchase their share in cash if they are unable to obtain a mortgage but have sufficient savings, or where no suitable mortgage product is available. For example, if an older person could not take out a mortgage due to their age, or someone with a lower income could afford the rental (and any service charge) element but not a mortgage. This would also include circumstances where an applicant cannot take out a standard mortgage for religious reasons.

6.10.3 An exception to this may be if mortgage products are unavailable due to an applicant’s adverse credit history. In such cases providers should refer to the feedback from the advisor and to their own policies to determine whether such an applicant is able to proceed and that any purchase is sustainable.

6.10.4 As there is no mortgage required providers may choose to check the affordability of the rent and any service charges using their own internal approach and policies.  For example, such an approach could be aligned with a provider’s approach to assessing the affordability of an applicant who has applied for an Affordable Rent or Rent to Buy home.  Any such policy or approach must be applied in a fair and transparent manner and information on how such assessments are made should be made available by the provider.

6.10.5 If a provider is able to source a willing external organisation, then the assessment of a cash purchaser’s affordability and suitable share purchase in line with paragraph 6.10.4 above can be outsourced.

6.10.6 Alternatively, as there is not a mortgage lender involved to carry out underwriting checks, applicants can be signposted to an independent financial advisor who will be able to give them personalised advice on their needs. Such advice would not be free of charge.  Where an applicant has received professional financial advice on the suitable share, this must not be overridden by the provider. However, given the costs involved in obtaining such advice this is not a requirement for a cash purchaser. The provider should agree how they will evidence an applicant’s financial information to avoid relying wholly on self-certification.

6.10.7 The starting point for determining the suitable share purchase for a cash purchaser should be the percentage that the applicant wishes to buy. If the applicant is seeking to withhold what could be considered a significant level of savings, the provider should establish their rationale for this and make an appropriate judgement. Applicants must be permitted to retain a reasonable level of savings for emergencies, as well as to cover known foreseeable events. Providers may wish to refer to Money Helper for more information and advice on savings.

6.10.8 Providers may decline applications where the applicant wishes to retain what it considers to be an unreasonable level of savings, and where the reason for which has not been clearly explained or justified by the applicant. Where the provider is declining a share purchase or requiring the applicant to purchase a higher share than the applicant has requested, the reasons should be documented on the sign off sheet and shared with the applicant.

6.10.9 Homes England has made available a separate sign off sheet template for cash purchasers to be completed by advisors and / or providers as appropriate.  As with the sign off sheet for applicants purchasing with a mortgage the content of this template represents Homes England’s minimum requirements.  The information presented can be added to as appropriate and any branding incorporated as desired.

6.10.10 For cash purchasers the sign off sheet should be signed by the advisor, provider and applicant. Please refer to paragraphs 6.8.7 to 6.8.10 for further guidance on signature requirements and document retention.

6.11 Home Ownership for people with long-term disabilities (HOLD)

6.11.1 HOLD applicants should be assessed in the normal way, whether purchasing with a mortgage or as a cash purchaser, to ensure that the purchase is affordable. This should factor in the applicant’s access to appropriate mortgage products where they are reliant on benefits including Support for Mortgage Interest (SMI).  HOLD applicants must not be disadvantaged or excluded because they rely on benefits or other support.

6.11.2 HOLD applicants buying in cash without a mortgage should follow the cash purchaser process as set out in section 6.10 above. Providers should, where applicable, consider any known care costs not covered by benefits when assessing the rent and service charge affordability.

6.11.3 Providers should give due consideration to the different savings requirements of applicants who have additional needs. For example, applicants may need to keep larger sums to cover future care costs.

6.11.4 For some HOLD applicants their circumstances will be such that a mainstream qualified and regulated advisor experienced in standard Shared Ownership will be able to undertake the assessment of their affordability and advise on the suitable share to be purchased.  For other HOLD applicants, however, where a standard mortgage is unlikely to be available for the applicant then a more specialist advisor with knowledge and experience of the specialist mortgages which may be available for HOLD applicants might need to be sourced.

6.12 Older Persons Shared Ownership (OPSO)

6.12.1 OPSO applicants should be assessed in the normal way to ensure that the purchase is affordable and sustainable.  However, the majority of OPSO applicants will be cash buyers with a small minority requiring and being able to purchase with a mortgage.  The guidance in section 6.10 above on cash purchasers will therefore be relevant in most cases.  

6.12.2 OPSO applicants may need to retain a higher level of savings or investments than other applicants to provide ongoing income, or to cover ongoing and future living and care costs. There is no cap on the level of savings or investments that an applicant can retain for this purpose. The provider and any advisor as relevant should make a judgement on this according to the individual circumstances of the applicant. 

6.12.3 Providers should ensure that all the necessary information relating to the applicant’s income, expenditure, savings, investments, etc, is provided by the applicant (or by others as appropriate) to enable such a judgement to be made.

6.12.4 The provision of paragraph 6.12.2 above would also extend to applicants who may be able to afford to purchase a home on the open market, but who are unable to commit all their available funds to buying a home outright due to the need for access to cash for essential purposes such as care costs, or just to help the funding of ongoing living costs if their income is insufficient to do so. This would, however, not apply to the retention of monies for non-essential costs, for example in order to be able to release equity to gift to family members.  

6.12.5 For extra care schemes advisors and providers can use an additional degree of flexibility when making this assessment, to consider the likely higher ongoing costs of the care being provided in such settings.

6.12.6 Ultimately it is for the provider to determine what they consider to be an appropriate and justifiable level of savings to be retained by OPSO applicants, ensuring that they exercise their judgement fairly and consistently whilst allowing for individual circumstances. Where the applicant has taken professional financial advice, this should not be overridden.

7. After sales

7.1 General

7.1.1 This section outlines Homes England’s guidance and requirements relating to events after the initial sale.

7.1.2 Where providers charge fees for any after sales services these should be fair, proportionate and within the income means of shared owners. Providers should clearly highlight and explain fees to both existing and prospective shared owners prior to a sale being agreed. This information should be readily accessible at any point to shared owners.

7.2 Staircasing

7.2.1 Shared owners may increase the percentage share of the equity that they own at any time during the term of the Shared Ownership lease, subject to the restrictions set out in the paragraph below. This process is known as ‘staircasing’. Staircasing requirements are a fundamental clause and must be set out in the shared owner’s lease. Please see sections 5.2 and 5.3.12 above for further details.

7.2.2 There are separate staircasing arrangements dependent on which Homes England affordable homes programme a Shared Ownership home was funded. For homes provided through the SOAHP 2016 to 2021 and previous programmes the minimum staircasing transaction is 10%. This includes Shared Ownership homes that are completed after 1st April 2021. For homes funded through Homes England’s AHP 2021 to 2026 then the minimum staircasing transaction has reduced from 10% to 5%. Additionally, shared owners have the option of purchasing an additional share of 1% per year for the first 15 years. These provisions apply equally to the resale of Shared Ownership homes funded through the AHP 2021 to 2026.

7.2.3 The price paid for further shares for all staircasing transaction other than the 1% per year option is based on the full open market value of the property provided by an independent Royal Institution of Chartered Surveyors (RICS) valuer in accordance with the requirements set out at section 2.3 above. The lease makes provision for the resolution of disagreement or dispute that may arise, between the landlord and the leaseholder, in respect of choosing a valuer. For 1% staircasing transactions the valuation is calculated from the Land Registry’s House Price Index. The detail of this methodology is contained within the Shared Ownership model lease and in the key information document that should be provided to shared owners prior to purchase of their home by landlords.

7.2.4 Under the terms of Homes England’s model lease, leaseholders have three months to complete their staircasing purchase from the date providers receive the valuation from either the RICS valuer or from their landlord if proceeding through the 1% staircasing option.

7.2.5 Where a RICS valuation is being used for staircasing transactions of 5% or more, providers have discretion to extend the three month period to six months where there has been a delay which is outside the control of the leaseholder and the provider, for example if documents were lost in the post or there were legal delays.

7.2.6 Where providers apply discretion, they must retain on file documentary evidence explaining the reasons for waiving the three month validity period.

7.2.7 Except on:

• Older Persons Shared Ownership schemes
• Rural Restricted Staircasing schemes and
• Designated Protected Area schemes

the staircasing provisions must allow staircasing to 100% where the properties have been grant funded.

7.2.8 Details of the staircasing requirements are set out in the model Shared Ownership lease. The lease makes provision for the resolution of disagreement or dispute that may arise, between the landlord and the leaseholder, in respect of choosing a valuer.

7.2.9 For profit Registered Providers should note that where they have received Shared Ownership stock from a non-profit making Registered Provider (regardless of whether that stock is grant funded or otherwise), in the event of staircasing or onward disposal this results in the proceeds being paid in to the Registered Provider’s Disposal Proceeds Fund. This is an exempted relevant event under 7m) exemption xiv) in the Recovery of Capital Grant and Recycled Capital Grant Fund Determination 2017 - see chapters 7 and 8 of this Capital Funding Guide on grant recovery.

7.3 Rural and protected area repurchase

7.3.1 The Rural Repurchase scheme is described in section 8 below. The lease and freehold arrangements (once the leaseholder has staircased to outright ownership and acquired the freehold where relevant) must ensure the provider has the opportunity to repurchase the property.

7.3.2 The Designated Protected Area repurchase programme is described at section 1.4.17.

7.3.3 For full details of grant eligibility see section 9.3.

7.4 Mortgage difficulties

7.4.1 As a last resort option when a shared owner is in, or is about to be in, mortgage arrears and potentially lose their home, including the likelihood of repossession by the main mortgage provider, providers may use their Recycled Capital Grant Fund (RCGF) to act as a ‘safety net’ and offer Flexible Tenure. Flexible Tenure is designed to enable a shared owner to remain in their home either by selling some of their shares back to their landlord in order to reduce their mortgage to a more affordable and sustainable level, or by selling all their shares back to the landlord and becoming a tenant. This is also known as downward staircasing. For further information and requirements see Grant Recovery section 6.5.

7.4.2 Leasehold repurchase

In exceptional circumstances, where providers have exhausted all other funding options, new grant may be available as a contribution to Leasehold Repurchase costs. As with funding Leasehold Repurchase with RCGF, new grant will only be available for up to 70% of the market value of the share to be purchased. Whilst there should be no presumption of grant funding being made available, Homes England will (where funding is available and on a case by case basis) consider funding applications for Leasehold Repurchase in circumstances where the provider can demonstrate:

• That the shared owner is about to or is likely to lose their home
• That the shared owner meets all relevant criteria outlined in Grant Recovery section 6.5
• That the provider meets all other relevant criteria as outlined in Grant Recovery section 6.5
• That all other funding options have been exhausted including:
  • The use of the provider’s own reserves
  • The use of its RCGF
  • The transfer of RCGF between Registered Providers as per Grant Recovery section 5.8
  • Other private funding
• That the property was previously grant funded and
• A justifiable case for new grant

7.4.3 For details of how the provider can demonstrate it meets the above requirements please see guidance below. Copies of relevant documents supporting these requirements should be retained by the provider for audit purposes.

Where a provider considers it meets the requirements for new grant as outlined in section 7.4.2 (above) it must first contact its Homes England Contract Manager, and be able to demonstrate that it meets those requirements. Whilst we will not expect to see copies of relevant documents it will expect to be sent a written business case outlining:

• The shared owner’s circumstances
• Previous grant funding
• The relevant arrears documents or other supporting papers from the mortgage provider it has seen
• Full details of what other funding options it has explored and why these are not available
• Why a provider cannot use its own or transferred RCGF
• Details of the leasehold repurchase transaction costs based on the property’s full market value, the share to be purchased, the value of that share, details of other available funding, how much grant would be required, and confirmation that new grant in excess of 70% is not required and
• Any other pertinent information

7.4.4 Providers who consider they meet the above requirements must contact their Contract Manager prior to submitting a bid for new grant in Homes England’s Homes England’s Investment Management System (IMS) to ascertain whether an application would be supported. Providers should note that, unlike Flexible Tenure, Leasehold Repurchase is only available for Shared Ownership properties that were previously grant funded by Homes England.

7.4.5 Following Flexible Tenure or Leasehold Repurchase, any subsequent upward staircasing will lead to grant recovery.

7.4.6 Mortgage default

For an explanation of what lenders do when a shared owner defaults please see the guidance below.

If a shared owner defaults on their mortgage payments, the commercial mortgage lender may apply to the courts for a ‘judgement’ or ‘order’ seeking to secure the arrears.

If the arrears are still not forthcoming, the commercial mortgage lender may apply to a court for an interim charging order. The interim charging order enables the commercial mortgage lender to apply for a restriction on the leaseholder’s title to the property at the Land Registry.

Court rules specify that all known parties with an interest in the property must be served with a copy of the interim charging order after it is made but before the final charging order is made.

Alternatively, a lender may enforce its power of sale under its first legal charge over the leaseholder’s interest, in which case, it is unlikely the lender would apply for an interim charging order / final charging order.

In October 2008 Homes England removed the requirement to register a restriction seeking its consent to vary a Shared Ownership lease. However, clauses in Shared Ownership leases issued prior to that date may have resulted in our predecessor organisation’s (The Housing Corporation) details being entered on the Land Registry title document. Due to these details being recorded on the document, Homes England is occasionally sent a copy of an interim charging order.

Commercial mortgage lenders are not legally obliged to seek our consent when applying for an interim charging order to be made. This is because we have no legal interest in the property which is to be the subject of the order.

7.4.7 Providers must seek their own legal advice before replying to the lender’s solicitor, or before taking any action against a defaulting leaseholder. For more information about mortgage default on Shared Ownership properties, see the Shared Ownership Joint Guidance. This document will be updated in 2024.

7.4.8 It is advised that struggling shared owners approach their lender in the first instance.

7.5 Additional borrowing

7.5.1 Whilst Homes England’s model Shared Ownership lease does not prohibit additional borrowing, it is subject to conditions contained in the lease and, in particular, the mortgagee protection clause (see section 5.2 above). The mortgagee protection clause is a fundamental clause of grant funded Shared Ownership leases. Leaseholders should be aware that even if the value of their share has increased lenders may not be prepared to provide additional borrowing if they cannot rely on the mortgagee protection clause to protect those additional sums loaned.

7.5.2 In all cases, the provider’s written approval is required regarding the lender and the terms of the mortgage before the mortgage is entered in to. If the provider’s approval is not obtained, the lender does not have the benefit of the mortgagee protection clause, and so is unlikely to advance any borrowings.

7.5.3 In addition to the requirement for provider approval, only certain loans are protected under the mortgagee protection clause, these include:

• The premium lent to purchase the initial share
• Further borrowing to enable the purchase of additional shares (staircasing)
• Further borrowings to comply with the leaseholder’s covenants in the Shared Ownership lease, such as essential repairs and
• Further borrowing to allow one leaseholder to buy out another leaseholder’s interest (in the same property)

However, additional borrowing can only be permitted if the premium and any further borrowing do not exceed the market value of the leaseholder’s share in the property.

7.5.4 Leaseholders wishing to borrow additional funds are advised to contact their landlord and lender to discuss the options and implications. For further guidance please see below.

There is nothing in Homes England’s model lease that prevents a leaseholder from increasing the borrowing secured against their share of the property, but any further borrowing is subject to the provider’s approval.

Under the mortgagee protection clause, the landlord’s written approval in respect of the lender and the terms of the mortgage is required before the mortgage is entered into. If the provider’s approval is not obtained, the lender does not have the benefit of the mortgagee protection clause.

Consent shall be deemed to be given by the provider where the lender advances monies to the provider to pay outstanding rent or service charge arrears, subject to a cap comprising of:

• The amounts advanced by the lender and approved by the provider plus
• An amount equivalent to interest on the above amount for a period of 18 months at the interest rate in force at the time of default plus
• Any amounts advanced by the lender to pay outstanding rent and / or service charge arrears plus
• 3% of the value of the property

The lender shall be able to deduct all monies legally due under the mortgage contract, less anything recovered, from the amount paid to the provider for final staircasing.

However, due to the terms of the mortgagee protection clause, leaseholders are unlikely to be provided with further advances unless the lender and the mortgage terms are approved by the provider. The provider should not agree to further advances unless they are made to enable the leaseholder to staircase, buy out another leaseholder in the same property, or to comply with its covenants under the lease.

Covenants under the lease would allow for repairs to the property but not improvements. Repairs might include works to correct wear and tear to bring the property back to at least the same standard when originally purchased, for example to replace a broken boiler. However, the addition of a conservatory would be classified as an improvement and so not covered by the mortgagee protection clause.

Whilst some home improvements might result in an increase to the property value further borrowings for this purpose are not covered by the mortgagee protection clause. If a lender was prepared to provide a further advance for home improvements it would be for the provider to consider whether it would:

• Agree to the improvements being undertaken, possibly including how they were to be undertaken and by whom and
• Approve the terms of any further borrowing

Covenants under the lease would not allow additional borrowing to fund the purchase of a new car, holiday, or to clear other debts etc.

Covenants under the lease would include further advances to pay off rent arrears. However, providers should proactively manage rent arrears and not seek to rely on capitalisation from lenders as a matter of course, as to do so will increase the cost of arrears to the leaseholder, because the lender would apply interest charges to them.

7.6 Lease extensions for property still in Shared Ownership

7.6.1 Homes England’s model Shared Ownership leases were first issued in the late 1970s / early 1980s. Many of these leases would have been issued for a term of 99 years, and the remaining term would now be significantly less than this.

7.6.2 We are aware that this may create difficulties for those shared owners now wishing to sell their share. Lenders have requirements on the minimum lease term they will consider to be adequate security. This may make it difficult for purchasers or those re-mortgaging to obtain a mortgage.

7.6.3 Whilst Shared Ownership leaseholders have no statutory right to a lease extension, the Government has announced its intention to extend this right to shared owners. We strongly recommend that providers grant extensions to Shared Ownership leases wherever possible. We encourage providers to offer as long a term as possible and to do so on fair terms. The government has announced its intention to reform leasehold legislation to make lease extensions fairer for leaseholders.

7.6.4 For shared ownership leaseholders who wish to extend their lease but live in developments affected by building safety challenges, we expect providers to make sure that all lease extensions reflect shared ownership leaseholders’ current protections from remediation costs as ‘qualifying leaseholders’ under Part 5 of the Building Safety Act 2022.

7.6.5 Providers should seek their own legal advice to ensure any obligations under the relevant leasehold legislation are met when granting lease extensions.

7.6.6 As a lease extension is not subject to a fundamental clause (section 5.2) there is no requirement for providers to seek Homes England’s consent to extend a lease.

7.6.7 Extending leases will have implications for both providers and leaseholders and we recommend that providers take various issues into account when discussing an extension with shared owners. For further guidance please see below.

When discussing lease extensions with either existing shared owners or prospective shared owners, providers should be mindful of the following.

Rents: A lease extension is not deemed a variation of the lease for rent purposes which means that the original fundamental clause in the lease in respect of rent will remain the same.

Values: A lease extension may initially increase the value of the lease, which in turn may affect the price of any future shares the shared owner may wish to purchase. However, it should be remembered that market values can both increase or decrease.

Staircasing: Having extended the lease the value of the both the leaseholder’s and provider’s shares may have increased. When staircasing, consideration should be given to how any increased share value might affect the revised rent calculation when following the rent formula written into the lease.

Legal Costs: Homes England does not wish to be prescriptive, but in most instances it is likely to be the shared owner (lessee) who will instigate the lease extension and it is anticipated that providers may expect the shared owner to pay the legal costs.

Whilst not a regulatory requirement, we recommend as good practice that providers produce and publish their own policy on Shared Ownership lease extensions for information purposes, having sought legal advice as appropriate. Such a policy might encourage equitable treatment and avoid the potential for future misunderstanding and or complaints.

The Department for Levelling Up, Housing and Communities (DLUHC) publish a document entitled Residential Long Leaseholders: a guide to your rights and responsibilities on their website. This publication has been produced in support of statutory rather than voluntary lease extensions, but its content may be informative. Also, the Leasehold Advisory Service provides useful information.

7.7 Resales – Key worker leases

7.7.1 Until March 2008, key public sector workers accessing Shared Ownership solely by virtue of their employment were subject to clawback upon leaving their qualifying employment. Since April 2008 that clawback has no longer applied and all Shared Ownership applicants have been provided with standard Shared Ownership leases.

7.7.2 However, prior to April 2008 a number of key public sector workers would have been provided with a key worker Shared Ownership lease which would have contained a fundamental clause relating to clawback.

7.7.3 When an existing shared owner who was provided with a key worker Shared Ownership lease wishes to sell their share, their lease will contain a fundamental clause relating to clawback which is no longer relevant. The continuing inclusion of the clawback clause in the lease may adversely impact on the assignment of that lease. For reasons why this may be so, please see below.

A prospective purchaser of an existing Shared Ownership share is likely to seek legal advice in connection with such a purchase. Where an existing lease contains the fundamental clause relating to clawback, which is no longer appropriate, a legal representative may question the appropriateness of proceeding with the purchase of the lease whilst the clause remains. This is even if Homes England’s published policy is that the operation of the clawback policy has been withdrawn.

It is also possible that in certain circumstances a mortgage provider will elect not to lend to leasehold purchasers where the lease continues to contain inappropriate clauses.

7.7.4 There is no requirement to vary the key worker Shared Ownership lease prior to resale, but the leaseholder may find it beneficial to do so to avoid the situations described above.

7.7.5 To assist leaseholders who wish to vary their key worker Shared Ownership lease prior to a resale we have produced a pro forma deed of variation for this purpose. The use of this pro forma deed of variation (which can be found in section 11.6 below), is intended to have the effect of varying the key worker Shared Ownership lease into a form substantially in line with standard Shared Ownership leases by removing the occupation and assignment restrictions. The document, which can be used for both houses and flats, contains explanatory notes which providers should refer to.

7.7.6 The drafting of the pro forma deed of variation has been kept as simple as possible. It has been produced on the basis that the provider and the leaseholder are still the original parties, and has been based on Homes England’s model leases.

7.7.7 Where there has been a change in the original parties or providers have used their own leases, providers must satisfy themselves, by seeking their own legal advice as appropriate, that a variation would not result in any breaches of covenants, consents or similar before completing a variation. In such cases providers are required to apply the same principles as contained in the pro forma deed of variation taking into account any amendments and cross-referencing differences as necessary.

7.7.8 It is anticipated that requests to vary a key worker Shared Ownership lease will not arise until such time as the leaseholder wishes to sell their share. For further guidance please see below.

In deciding whether to vary their existing key worker lease to address clawback issues, it is suggested leaseholders discuss the matter with their provider landlord and consider seeking their own legal advice. Providers may also consider it appropriate to seek their own legal advice. It is expected that the existing leaseholder will be responsible for meeting the cost of the variation.

7.7.9 As explained above in section 7.7.1, clawback no longer applies and is no longer a fundamental clause. However, varying a key worker Shared Ownership lease in the manner described above will involve a variation to what was a fundamental clause and proposed variations are dealt with according to Homes England guidance - ‘Procedures for varying Shared Ownership leases ‘. Providing our pro forma deed of variation is used, or the principles contained within it are applied where our model lease was not originally used, formal consent to vary the lease will not be required unless a restriction still appears on the title registered at Land Registry. See the above guidance document for further information regarding restrictions registered at Land Registry.

7.7.10 If a restriction is still registered at Land Registry then Homes England’s formal consent to vary the lease will be required. In this case providers should contact Homes England via [email protected] in writing requesting formal consent to vary the lease in accordance with our guidance document (as per 7.7.9 above) and this section of the Capital Funding Guide. Provided the request contains a statement including the details outlined in this section and the pro forma deed of variation, etc, consent will not be unreasonably withheld.

7.7.11 In exceptional circumstances, where providers wish to seek a variation that does not follow the pro forma deed of variation or its principles a written explanation containing full details is required to be submitted to the Provider Management team.

7.7.12 Applicant eligibility and prioritisation guidance have been updated (please see section 3 above for further details).Therefore when Key Worker Living funded properties come to be sold on there is no definition of eligible key workers. Bearing this in mind, providers should follow our eligibility and prioritisation guidance.

7.8 Resales - Valuations

7.8.1 Homes England’s model lease contains a fundamental clause relating to alienation (see section 5.2). This clause requires that ‘the market value shall be assessed by the valuer and evidenced by a certification in writing in such form as may be approved from time to time by the Agency.’ The certificate should be in writing and confirm that the valuation has been undertaken by an independent Royal Institution of Chartered Surveyors qualified valuer and based on vacant possession of the whole property. By independent we mean that the valuation is undertaken by an individual / organisation external to the grant recipient organisation.

7.9 Older Persons Shared Ownership (OPSO) resales

7.9.1 Resales of OPSO homes will generally follow the same principles as for mainstream Shared Ownership and will always be governed by the terms of the lease. For more details on OPSO please see section 1.4.11.

7.9.2 Where shared owners are experiencing significant difficulties in selling their OPSO home providers are encouraged to explore other options with their leaseholders. This could involve:

• The possibility of the provider repurchasing the property and letting the property at an Affordable Rent if they have a new supply agreement in place and permitted conversion capacity, or, if not, letting at target rent
• Giving temporary permission to the leaseholder to sub-let the property. In all cases tenancies should only be granted to persons aged 55 years or over

7.9.3 Where owners request that subletting be permitted, this should be in line with the requirements of section 5.3.21, with the additional stipulation that tenancies must only be granted to persons aged 55 years or over.

7.9.4 The Housing Ombudsman Service has determined that occupation by someone not meeting the age restriction must be regarded as a breach of the terms of the lease.

7.10 Landlord Repurchase

• Right of first refusal / first option to buy (please see 5.3.25)
• Flexible tenure (please see Grant Recovery 6.5)
• Re-purchase of equity (please see 5.3.28)
• Rural programme (please see section 8)

7.10.1 Shared Ownership leases issued in Designated Protected Areas which allow leaseholders to staircase in excess of 80% will oblige the leaseholder to sell their shares back to the landlord. In such cases we will expect landlords to repurchase those properties or nominate another provider to do so. For further information please see section 9 below on Designated Protected Area Repurchase.

8. Rural repurchase

8.1 General

8.1.1 Grant funded Shared Ownership schemes built in qualifying rural areas (settlements with less than 3,000 inhabitants) and on rural exception sites will be subject to repurchase arrangements. For a brief explanation please see below.

The repurchase arrangements allow providers to buy a property back from an existing leaseholder (using grant in some circumstances) to enable a resale to a local household in housing need. The aim of the arrangements is to retain low cost housing for rural communities. See also section 5.3.32.

8.1.2 Grant may be made available, on a case-by-case basis, by Homes England to fund rural repurchases where the homes are required to remain affordable in perpetuity. Grant will only be provided when all other funding options have been explored and exhausted by the providers.

8.2 Features of the scheme

8.2.1 The repurchase scheme operates on the basis that when a shared owner (or the owner in the 21 years after the property has been staircased to 100%) wishes to dispose of the property, providers are able to repurchase it and re-sell it on a Shared Ownership basis. The equity level at which resales take place will depend on the means of local residents.

8.2.2 Providers must fund the repurchase from the following sources if possible:

• Recycled Capital Grant Fund (RCGF)
• Their own resources
• A private loan or
• Any combination of the above

8.2.3 If the provider is unable to fund the repurchase through these routes they are expected to invite another appropriate provider to use its RCGF, own resources, or private finance to purchase the property instead.

8.2.4 If it is not possible to fund the repurchase through these routes then the provider can seek grant funding from Homes England who will assess such applications on a case by case basis and where funding is available.

8.2.5 The price to be paid for the property will be the market value of the whole of the property, where the freehold or full lease is being acquired, or the proportion of the market value equivalent to the current shared owner’s equity stake in the property.

8.2.6 Rural repurchase arrangements do not apply to Older Persons Shared Ownership.

8.3 Scheme criteria

8.3.1 To qualify for inclusion in the rural repurchase arrangements a Shared Ownership scheme must comply with the following criteria:

• It was developed on a rural exception site or on a rural site as part of one of Homes England’s current or previous Affordable Homes Programmes
• Grant Confirmation was given on or after 1st April 1990, or an allocation given after April 2006, and the scheme was identified as Rural Repurchase at that time
• Grant confirmation was given before 1st April 1990, but the leases were granted after September 1990 and the provider informed Homes England by 1st November 1990 that it intended to include the option to repurchase clause in the lease

8.3.2 To qualify for grant for a repurchase the following criteria must be satisfied:

• The option to repurchase clause is included in the lease
• A local purchaser has been identified who can purchase at the proposed level of equity. In this context ‘local’ is defined as a person(s) with connections to the area and complies with the planning requirements (the section 106 Agreement, condition on the planning permission or unilateral undertaking as applicable)
• The provider has attempted to market the property at the current level of equity and no local purchaser is available who can afford the current level of equity; and (where the provider is selling at less than the original equity percentage sold) no local purchaser has been found who can afford the original percentage of equity sold
• The provider is unable to fund the repurchase through:
  • Its Recycled Capital Grant Fund (RCGF)
  • Its own resources or
  • A private loan
• The provider has attempted to find another appropriate provider to use its RCGF or private finance to purchase the property but they are also unable to fund the purchase
• The sum of surpluses made on any previous staircasing of that home must be less than the grant calculated as due for the repurchase

8.4 Grant framework

8.4.1 There are no cost or value limits when grant is paid on repurchase by the provider but Homes England expects providers to maximise their contribution.

8.4.2 Any surplus made on previous staircasing sales of the home subject to repurchase will be taken into account in the grant calculation and the grant payable will be reduced by the amount of the surplus. No grant will be payable if surpluses equal or exceed the grant needed.

8.4.3 On repurchase, the home is treated as a single home scheme.

8.4.4 There may be more than one repurchase of a particular home.

8.5 Submission of application

8.5.1 When providers have ensured that all the scheme criteria (as per 8.3 above) are met, and the qualifying applicant has exchanged purchase contracts, they can make a submission for grant using Homes England’s Investment Management System (IMS).

8.5.2 Providers must make the submission for grant payment no later than seven days after the exchange of contracts.

8.5.3 Providers must ensure that:

• Homes England has been notified of any fundamental change that has occurred to the scheme which could affect it
• The property to be acquired offers good title. New Shared Ownership leases should be offered on a term of 990 years where the providers have the ability to do so. If the provider owns a leasehold interest of less than 990 years, they should offer the shared owner the maximum term possible. This should be no less than 125 years
• A valid valuation by an independent Royal Institution of Chartered Surveyors (RICS) qualified valuer has been supplied and is kept on the provider’s file. By independent this means that the valuation is undertaken by an individual / organisation external to the grant recipient organisation.
• A record of the surpluses made on previous staircasing transactions on the property is kept on file. Where there are no surpluses this fact must be stated on the provider’s records

8.5.4 If a provider offers the home as security for private finance, the provider will need to notify Homes England about the legal charge (please refer to our guidance on notifications).

8.5.5 Payment will not be made earlier than the completion date. Homes England will pay grant direct to the provider within 15 working days, upon receipt of a correct and accurate claim.

8.6 Lease requirements

8.6.1 Please see section 5.4.

8.7 Grant recovery

8.7.1 For details of grant recovery / recycling on staircasing for rural repurchase schemes refer to the Grant Recovery chapter of this guide.

8.8 Examples of grant framework.

Please see examples below.

Rising Market Example 1
Initial Purchase (50%)
Value of property	£180,000
Sale Proceeds (50% of value)	£90,000
Grant	£54,000
Loan	£36,000
Staircase to 75%
Value	£210,000
Sale Proceeds (25% of value)	£52,500
Repay grant (50% of total grant as new share is half of equity owned by provider)	£27,000
Repay Loan (50% of total loan as new share is half of equity owned by the lender)	£18,000
Surplus (sales proceed net of repayable grant and repayable loan)	£7,500
Grant remaining	£27,000
Loan remaining	£18,000
Buyback at 75% and resale of 50% equity
Value	£240,000
Price paid by provider for repurchased equity at 75%	£180,000
New Equity sale proceeds at 50%	£120,000
Cost of unsold equity	£60,000
Grant	£36,000
On cost at 5% (of total value)	£12,000
Total (Grant and On cost)	£48,000
Less surplus	£7,500
Total grant paid	£40,500
Total grant on property	£67,500
Long term loan	£42,000

Rising Market Example 2
Same initial purchase.
Staircase to 100%
Value	£210,000
Sale proceeds	£105,000
Repay grant	£54,000
Repay loan	£36,000
Surplus	£15,000
Buyback at 100% and resale at 50%
Value	£240,000
Sale proceeds at 50%	£120,000
Cost of unsold equity	£120,000
Grant	£72,000
On cost at 5% (of total value)	£12,000
Total	£84,000

Falling Market Example 1
Same initial purchase and staircase to 75%
Value	£150,000
Sale proceeds	£36,500
Repay loan	£18,000
Repay grant	£19,500
Grant remaining	£34,500
Loan remaining	£18,000
No surplus
Buyback at 75% and resale at 50%
Value	£135,000
Price paid for repurchased equity at 75%	£101,250
New Equity sale proceeds at 50%	£67,500
Cost of unsold equity	£33,750
Grant	£20,250
On cost at 5% (of total value)	£6,750
Total grant	£27,000
Total grant on property	£61,500
Long term loan	£31,500

Falling Market Example 2 | - | -
Same initial purchase |
Staircase to 100% | Value | £150,000 Sale proceeds | £75,000 Repay loan | £36,000 Repay grant | £39,000 Grant remaining | £15,000 No surplus | Buyback at 100% and resale at 50% | Value | £135,000 Sale proceeds | £67,500 Cost of unsold equity | £67,500 Grant | £40,500 On cost at 5% (of total value) | £6,750 Total | £47,250 Total grant on property | £62,250 Long term loan | £27,000

9. Designated Protected Area repurchase

9.1 General

9.1.1 In grant funded Shared Ownership schemes built in Designated Protected Areas (i.e. settlements designated by the Secretary of State since 7 September 2009 as being in a protected area), where the leaseholder is allowed to acquire more than 80% of the equity in their home, the property will be subject to mandatory repurchase arrangements.

9.1.2 In support of the government’s aim to retain grant funded Shared Ownership homes in Designated Protected Areas, and where landlords have robustly exhausted all other funding routes, including the use of or transfer of Recycled Capital Grant Fund (RCGF), Homes England will positively consider applications for grant to fund the repurchase of Shared Ownership property, subject to the availability of funding, where:

• The property was funded under our Designated Protected Areas policy
• The Shared Ownership lease granted contained our Designated Protected Area fundamental clause obliging the shared owner to sell the property back to the landlord, or the landlord’s nominee

9.2 Features of the scheme

9.2.1 The repurchase scheme operates on the basis that when a shared owner who owns in excess of 80% of the shares in their property wishes to move, the landlord (or the landlord’s nominee, who must be a Registered Provider) is obliged to buyback the property in order to re-sell it on a Shared Ownership basis to another eligible applicant. For shared owners that own less than 80%, where there is no cap on staircasing, landlords have the option to nominate a subsequent purchaser, but would not be obliged to repurchase the lease. Where landlords choose not to nominate or waive their option to repurchase, then the shared owner is free to sell their share on the open market (subject to the buyer being subject to the same restrictions on staircasing).

9.2.2 Landlords (including the landlord’s nominee) must firstly consider funding the re-purchase from the following sources where possible:

• Their own RCGF or RCGF transferred from another provider (see also scheme criteria below)
• Their own resources
• A private loan or
• Any combination of the above

If, having exhausted the above options, landlords are unable to fund or can only part fund the repurchase, they can apply to Homes England for grant to fund the balance (i.e. an amount up to 100% of market value). We will positively assess such applications where the repurchase meets the relevant scheme criteria as detailed below.

9.2.3 The repurchase price must be the market value of the whole property where the freehold or full lease is being acquired, or the proportion of the market value equivalent to the current shared owner’s equity stake in the property.

9.2.4 Having repurchased the property the landlord will then be required to resell the property on Designated Protected Area Shared Ownership terms as soon as possible. The terms on which it is sold will be dependent on the Homes England funding programme in which it was originally allocated. The equity level at which the resale takes place will be subject to normal Shared Ownership minimum / maximum initial share criteria (according to the Homes England programme within which it was funded) and governed by the amount of shares the new applicant will be able to afford and sustain.

9.3 Scheme criteria

9.3.1 To qualify for inclusion in the Designated Protected Area repurchase arrangements the property must comply with all the following criteria:

• It is located within a Protected Area as designated by the relevant Designated Protected Area Order (SI 2009/2098)
• It was grant funded as part of Homes England’s Shared Ownership Designated Protected Area policy see section 1.4.17
• The lease was first granted on or after 7 September 2009
• The lease contained Homes England’s Designated Protected Area fundamental clause, enabling the shared owner to purchase in excess of 80% of the shares and
• The lease reflected the additional requirements as indicated below

9.3.2 Having explored and exhausted all other funding options, to qualify for grant to fund the repurchase the Shared Ownership lease must contain the following information which is based on and reflects the requirements in the Housing (Shared Ownership Leases) (Exclusion from Leasehold Reform Act 1967) (England) Regulations 2009 - Statutory Instrument 2009/2097.

Details of when and how the tenant must notify the landlord, in writing, of an intention to sell their shares in the home, including:

a) A requirement that the landlord will respond to such a notice in writing within six weeks explaining that it or its nominee, will purchase the tenant’s shares in the property

b) A requirement that the market value will be established and agreed in accordance with the principles outlined in paragraph 3 of the above regulations

c) A requirement that the price as agreed above will be the price that the purchase will proceed at

d) A requirement that the shared owner(s) must notify the landlord in writing that they are ready to sell the shares in the property at the price as agreed according to the above valuation arrangements

e) A requirement that the landlord (or the landlord’s nominee) will complete the purchase within three months of receiving the shared owners ‘ready to sell’ notice

f) Details of the remedies available to the shared owner in the event of a failure by the landlord (or the landlord’s nominee) to complete the repurchase in accordance with the terms of the lease which will reflect the requirements set out in the above Regulations

Homes England does not intend to be overly prescriptive with regard to the above requirements, but we have produced additional guidance notes. However, landlords are required to seek their own legal advice regarding the Regulations.

a) Homes England does not intend to be prescriptive in this matter other than to require that any such notification should be in writing and confirm the shares to be sold.

b) We anticipate that, as part of any local strategic partnership discussions in connection with its proposed development of grant funded Shared Ownership schemes in Designated Protected Areas, the developing landlord would include in those discussions, conversations with likely providers or other housing associations who would be prepared to act in the capacity of a nominee in the event that the landlord would not be in a position to repurchase the proposed property.

c) Our policy is that valuations are anticipated to be valid for three months unless otherwise stated by the valuer. Whilst we do not intend to be overly prescriptive as to when the tenant should arrange for a valuation, we should point out that the purchase price to be paid will be that agreed between both the shared owner and the landlord in accordance with the criteria set out in the lease (which should be based on paragraph 3 of the relevant Regulations – Statutory Instrument 2009/2097), with any dispute being resolved by reference to an independent body as per the Regulations.

d) Having agreed or determined the purchase price as above, this is the price at which any purchase will proceed regardless of any further changes in market value at the time of exchange or completion.

e) Homes England does not intend to be prescriptive as regards any further details the landlord may wish to include in the shared owner’s ‘ready to sell’ notice.

f) Having agreed the purchase price before the shared owner’s ‘ready to sell’ notice is issued, we consider that a period of three months from receipt of that notice is sufficient time to complete the transaction.

g) We do not intend to be prescriptive as regards the remedies that must be contained in the Designated Protected Area Shared Ownership lease, other than they should reflect the requirements of the relevant legislation. However, the Regulator of Social Housing may cover the subject of compensation. If landlords are in any doubt then it is suggested they may wish to discuss this matter further with the Regulator of Social Housing.

9.3.3 Whilst the above criteria are a requirement of grant eligibility, it is not Homes England’s intention for them to be fundamental clauses. However should a Designated Protected Area lease allowing a shared owner to acquire more than 80% of the property be issued without the above criteria then grant paid to fund a repurchase will be potentially recoverable on the grounds of a failure to comply with any condition attached to the making of grant. This is a relevant event for grant recovery purposes.

9.3.4 Where landlords elect not to use the model Designated Protected Area leases it is recommended that they seek their own legal advice.

9.3.5 Any home in a Designated Protected Area that is repurchased wholly or in part with RCGF and subsequently resold on Shared Ownership terms will require leases to adhere to the above scheme criteria.

9.4 Grant framework

9.4.1 There are no maximum value limits when grant is claimed under the Designated Protected Area repurchase framework. However, landlords would not be expected to pay, and therefore use RCGF or claim grant to fund a purchase above market value.

9.4.2 Any receipts and surpluses made on previous staircasing sales of the home subject to repurchase which might be held in the landlords accounts or RCGF should be taken into account when applying for new grant to repurchase the property.

9.4.3 Where the landlord’s RCGF is deemed as ‘committed’ – on a similar basis as per Grant Recovery section 5.9.4, Homes England will not expect this to then be spent on funding Designated Protected Area repurchases.

9.4.4 On repurchase, the property is treated as a single unit scheme.

9.4.5 A home may be subject to repurchase more than once, and the same criteria would apply for each repurchase of that particular home.

9.4.6 Payment will not be made earlier than the completion date. Upon receipt of a correct and accurate claim Homes England will pay grant within 15 working days - provided this period does not expire prior to completion.

9.5 Lease requirements

9.5.1 Please see section 5.4 for details of the Designated Protected Area fundamental clause, and 9.3 above regarding lease requirements to meet scheme criteria conditions.

9.6 Recovery of grant

9.6.1 For details on the recovery of grant please see Grant Recovery chapter section 4.5.

10. Reporting and audit requirements

10.1 General

10.1.1 Providers must maintain accurate and complete records of sale transactions both for reporting and audit purposes.

10.2 Scheme information

10.2.1 All sales must be recorded on a COntinuous REcording (CORE) sales log. Providers should contact the Department for Levelling Up, Housing and Communities for any queries about CORE and the appropriate forms.

10.3 Supporting documentation

10.3.1 For details see Programme Management section 7.

11. Model leases and Key Information Documents

11.1 General

11.1.1 All Shared Ownership leases issued in respect of homes funded by Homes England must as a minimum include the fundamental clauses contained in the model leases. Providers can choose to use the leases as drafted, or issue their own lease provided that they contain the fundamental clauses as set out in the lease section of this guide – see section 5.2.

11.2 Model form of leases

11.2.1 It is strongly recommended that providers should use our model form of leases which are widely recognised by lenders and solicitors. Providers are recommended to use the relevant model leases dependent on which Homes England affordable housing programme the Shared Ownership homes were funded through. However, providers do have the option of offering the appropriate model lease for AHP 2021 to 2026 in respect of SOAHP 2016 to 2021 homes that complete after 1st April 2021.

11.2.2  All relevant parties should ensure that they use the correct lease with regard to the programme period, Shared Ownership product and rent review mechanism taking into account the guidance below.

Summary of changes to the latest suite of model leases (October 2023)

11.2.3  The latest suite of model leases for the AHP 2021 to 2026 and SOAHP 2016 to 2021 programmes were updated on 12th October 2023 to reflect the change of the basis of the annual rent review from the Retail Price Index (RPI) to the Consumer Price Index (CPI) in new Shared Ownership leases.  This change was announced by the Department for Levelling Up, Housing, and Communities on 12th October – see Shared Ownership rent reform.

11.2.4  This change by Government moves the basis of the annual rent review for relevant leases from a maximum of RPI + 0.5% to CPI +1.0%, thereby bringing it into line with the maximum annual rent increase on social and affordable rented homes.  More information about this change can be found in section 4 of this chapter.

11.2.5  Note this change is only relevant to new grant funded Shared Ownership leases provided through either the AHP 2021 to 2026 or SOAHP 2016 to 2021 programmes.  It will also apply to Shared Ownership homes funded from a provider’s Recycled Capital Grant Fund (RCGF) without any new grant from this date.  Please refer to paragraphs 11.2.9 to 11.2.11 below for more detail on which model lease should be used given that RPI and CPI leases for each programme are running concurrently.

Changes to the CPI-based rent review model leases

11.2.6  In addition to CPI-based rent review model leases now being available for both programmes alongside RPI-based rent review leases, the following changes (all within the relevant Rent Review Schedule) have been made within the CPI-based model leases for the AHP 2021 to 2026 and SOAHP 2016 to 2021.  The list below excludes the replacement of all references to RPI with CPI (or CPI + 1.0% as relevant) in the Rent Review Schedules.

• The definition of ‘A’ changed to refer to the date of the lease as set out in Prescribed Clause LR1
• Additional wording to the definition of ‘Index’ to clarify the process to be followed if the relevant index ceases to be available
• Title of section 3 amended to ‘Rent review’
• Paragraph 3.1 wording amended to allow a landlord to provide a lesser amount at their discretion (linked to new paragraph 8)
• Paragraph 3.3 amended to allow Homes England to influence what should happen if the published index ceases to be published
• New paragraph 8 added to allow landlords to operate with discretion as to whether a lower annual rent increase than the maximum is applied (or even a reduction)
• Notice of Rent Increase (Appendix 2) amended to provide more explanation of the information provided

Changes to the RPI-based rent review model leases

11.2.7  The following changes have been made to the RPI-based suite of model leases.  Note that only one change has been made to the AHP 2021 to 2026 RPI-based model leases.  For the SOAHP 2016 to 2021 RPI-based model leases more changes have been made to provide consistency with the AHP 2021 to 2026 model leases where these changes were made in the previous June 2023 versions.

Change in both AHP 2021 to 2026 and SOAHP 2016 to 2021 model leases

• minor amendment to Option B of the SDLT Certificate to reference the correct paragraph of Schedule 9 of the Finance Act 2003

Changes to the SOAHP 2016 to 2021 model leases

• updates to page numbering, formatting, and contents to ensure consistency
• minor revisions to the Particulars
• amendment of reference of ‘Mortgage Protection Claim’ to ‘Mortgagee Protection Claim’
• addition of paragraph 1.9 in the Staircasing Provisions in all model leases

11.2.8  The above changes and improvements to the RPI-based model leases are considered minor and do not affect any of the fundamental clauses.  Where previous versions of leases for both programmes have been used then they remain fully compliant and can continue to be used.

Which model lease should be used?

11.2.9  New Shared Ownership leases granted after 12th October should use the CPI-based model leases. However, there is an exemption for homes where funding has been agreed prior to this date. These homes may continue to use the RPI-based model leases. This exemption covers homes as set out below.

Shared Ownership homes provided through Continuous Market Engagement (CME)

• the scheme has been accepted as a firm scheme and has been allocated funding on IMS as at 12th October 2023
• the scheme has been submitted in IMS as a bid prior to 12th October 2023 but is awaiting a decision from Homes England and is subsequently allocated
• the scheme is either a substitute or an indicative scheme in IMS and the provider is able to evidence that they are in a legally binding contract to acquire and / or develop the site / properties; this legally binding contract needs to have been entered into prior to the 12th October 2023 and commits them to incur Development Costs as defined in the relevant Grant Agreement

Shared Ownership homes provided through a Strategic Partnership

• the scheme in question is an ‘active site’
• the scheme is in a strategic partner’s pipeline and the partner is able to evidence that they are in a legally binding contract to acquire and / or develop the site / properties; this legally binding contract needs to have been entered into prior to the 12th October 2023 and commits them to incur Development Expenditure as defined in their Strategic Partnership Grant Agreement

11.2.10  Where a Shared Ownership scheme meets the above criteria and is therefore able to use one of the RPI-based rent review model leases,  providers should consider offering the CPI-based rent review model lease where it is viable to do so.  This can be done without the need to seek Homes England’s consent.

11.2.11  Providers are able to amend the rent review basis within older, existing Shared Ownership leases from RPI-based to CPI-based where they think this appropriate or prudent.  Where this is agreed then Homes England’s permission to do so is not required and it will be for the parties involved to determine the mechanism for achieving this.

Model leases for homes provided through the AHP 2021 to 2026

The model leases that should be used for Shared Ownership homes funded by Homes England through the AHP 2021 to 2026 can be found on our Affordable Homes Programme 2021 to 2026 - model leases page. Alongside the standard model leases for Shared Ownership flats and houses are variant leases for homes provided in Designated Protected Areas (80% restricted staircasing and mandatory buyback) and for Older Persons Shared Ownership (OPSO). Providers of Home Ownership for people with long-term disabilities (HOLD) should use the appropriate standard model lease.  For each there is a CPI and an RPI based rent review model lease.

Model leases for homes provided through the SOAHP 2016 to 2021

The model leases that should be used for Shared Ownership homes funded by Homes England through the SOAHP 2016 to 2021 can be found on our SOAHP 2016 -21 Shared Ownership leases page.

For any new Shared Ownership homes in Designated Protected Areas (DPAs) or for Older Persons Shared Ownership (OPSO) it is recommended that the current SOAHP 2016 to 2021 model leases are used as the base document and adapted as necessary.  These adaptations would be to include the DPA or OPSO specific features of the relevant AHP 2021 to 2026 model lease, but ensuring to exclude the features that are not relevant such as the Initial Repair Period and 1% staircasing.

• Key information for shared owners of houses in England
• Key information for shared owners of flats in England

11.3 Key Information Documents for shared owners

11.3.1 For both sets of model leases (SOAHP 2016 to 2021 and AHP 2021 to 2026) there are Key Information Documents for shared owners that landlords are required to provide to purchasers. These are provided to help shared owners understand what they are purchasing.

11.3.2  The Key Information Documents were amended and re-published on 12th October 2023.  This was primarily to reflect the change from RPI-based annual rent reviews to CPI-based annual rent reviews for new Shared Ownership homes funded after this date.

11.3.3  We also took the opportunity to include in the last update of the Key Information Documents a more medium term projection of the rents over a 5-year period that a customer may expect based on an assumed level of RPI or CPI.  These projections are only intended to be indicative as the future level of these indices cannot be predicted with any degree of certainty.  The 5-year rent projections can be found in the ‘Rent review’ section of the relevant ‘Summary of costs of the Shared Ownership home’ Key Information Document.

11.3.4 The Key Information Document packs should be completed and presented by providers for the sale of new and resale Shared Ownership homes. Providers should ensure that the appropriate Key Information Document pack is used dependent on the type of Shared Ownership home being provided and the relevant AHP programme it was funded through (AHP 2021 to 2026 or SOAHP 2016 to 2021).

11.3.5 It is a condition of grant funding that these documents are completed and provided to the customer no later than at reservation stage. The completed documents should be sent to the buyer’s solicitor along with the Memorandum of Sale. Providers should obtain confirmation from the buyer’s solicitor that these have been provided to the customer. If this requirement causes an unnecessary delay to the purchase, then providers may evidence compliance by one of the following means:

• written confirmation from the provider’s legal representative that the documents have been sent to the buyer’s solicitor, together with evidence that best endeavours were made to gain confirmation from the buyer’s solicitor
• written confirmation from the buyer that they have received and discussed the final suite of documents with their solicitor, together with evidence that best endeavours were made to gain confirmation from the buyer’s solicitor

There is no prescribed format for the above. Email confirmation is acceptable.

11.3.6 Each Key Information Document has a guidance page for providers which contains instructions on how and when they should be used. The ‘Summary of costs of the Shared Ownership home’ and ‘Key information about Shared Ownership’ documents should be explained to the customer who should be given the opportunity to ask questions before reserving the home.

11.3.7 The documents can be branded but the information within the fields and the order of information as set out must not be altered.

11.3.8 The documents can be made available electronically, but providers must ensure there are accessible versions (including print) available for customers who require them. If the document is printed, the information contained in the hyperlinks must also be shared.

1. Key Information Documents for homes provided through AHP 2021 to 2026 (last updated 12 October 2023)

The Key Information Documents that should be used for Shared Ownership homes funded by Homes England through the AHP 2021 to 2026 can be found on our Affordable Homes Programme 2021 to 2026 – key information documents. There are separate suites of documents for standard Shared Ownership homes, homes provided in Designated Protected Areas (80% restricted staircasing and mandatory buyback), Older Persons Shared Ownership (OPSO) and Home Ownership for people with long-term disabilities (HOLD).

2. Key Information Documents for homes provided through SOAHP 2016 to 2021 (last updated 12th October 2023)

The Key Information Documents that should be used for Shared Ownership homes funded by Homes England through the SOAHP 2016 to 2021 can be found on our Shared Ownership and Affordable Homes Programme 2016 to 2021 – key information documents page. There are separate suites of documents for standard Shared Ownership homes, homes provided in Designated Protected Areas (80% restricted staircasing and mandatory buyback) and Older Persons Shared Ownership (OPSO).

11.4 Pro-forma deed of variation for the removal of the pre-emption clause

11.4.1 We have published a pro forma deed of variation to be used in relation to existing flat leases for the removal of the right of pre-emption. For further detail, providers are referred to section 5.3.25 of this guide, which sets out the detail of the potential scenarios that may apply to existing and former shared owners in relation to the removal of the post-final staircasing pre-emption right.

• Deed of Variation Flat Lease (2010 model lease version) (.doc, 78kb)

11.5 New Build HomeBuy pro forma deed of variation

11.5.1 We have issued a proforma deed of variation for use with the New Build HomeBuy lease as below.

• Deed of Variation Flat Lease (NBHB model lease version) (.doc, 72kb)

11.6 Key Worker Living (KWL) pro forma

11.6.1 The updated KWL lease pro forma deed of variation for use when assigning KWL leases is available to view below:

• Key Worker Living pro forma (.doc, 1.8mb)

11.7 Lease variations

11.7.1 Providers are able to make amendments to the model form of lease where these do not fetter the operation of the fundamental clauses without the need to first request Homes England’s permission. It is recommended that providers do not significantly vary the terms of the model form of lease. However, there may be certain exceptional circumstances which dictate that the operation of the fundamental clauses is in some way fettered or compromised and amendment may be the only practical option.

11.7.2 Homes England has produced a guidance document for reference purposes (see link below). Providers are advised that our starting position in respect of requests to vary the fundamental clauses is only to agree to this in very limited and exceptional circumstances.

Procedures for varying grant funded shared ownership leases

11.8 Lease updates for lending requirements

11.8.1 Current lending practice generally requires that a borrower’s solicitor confirms that the form of Shared Ownership lease either complies with the latest form of model lease or, more commonly, contains the currently prescribed form of the fundamental clauses.

11.8.2 The approach of lenders on historic versions of the fundamental clauses varies but, as a general rule, older leases which either do not contain the Mortgagee Protection Clause (MPC) or which contain an early version of the MPC tend to be less easy to obtain mortgage finance for.

11.8.3 There are a number of additional features and fundamental clauses in the suite of model leases for homes provided through the AHP 2021 to 2026 as well as to homes developed pursuant to qualifying Section 106 arrangements, due to the policy changes introduced by Government on 1st April 2021.

11.8.4 In light of this, for the updating of older leases, we suggest that the current form of the model lease for the SOAHP 2016 to 2021 (as per section 11.2 above) or the fundamental clauses set out in those leases should be used. We anticipate that this will apply in circumstances where either the form of existing Shared Ownership lease is significantly out of date, or for use with lease extensions where the existing form of lease is out of date.

11.8.5 This is only intended to be guidance rather than a requirement. For the avoidance of doubt, we would not anticipate that leases using the form of base model lease or fundamental clauses published from 2010 onwards would be considered to be unsuitable for future lending.

11.8.6 We suggest in these circumstances that the standard fundamental clauses in the relevant AHP  2021 to 2026 lease (see section 11.2 above) should be used, with Schedules 6 and 7 in the model house lease and Schedules 9 and 10 in the model flat lease being deleted, along with all corresponding cross references to those schedules in the body of the lease.

11.9 Historical leases

11.9.1  Shared Ownership model leases only began to be published online in October 2006. A comprehensive catalogue of older model leases before this date is not kept but some (not all) historical copies are held in electronic format by Homes England. For advice on, or copies of, older model leases please contact Homes England via [email protected]. 

11.9.2  Accessible online versions of historical model leases can be found on our Shared Ownership historic model leases page. These include previous versions of both the AHP 2021 to 2026 and SOAHP 2016 to 2021 leases.

12. Right to Shared Ownership (RtSO)

12.1 Introduction

12.1.1 The Government published its policy on Right to Shared Ownership (RtSO) on 8 September 2020. It applies to rented homes funded through the Affordable Homes Programme 2021 to 2026. See the RtSO initial guidance for registered providers for guidance on property and applicant eligibility.

12.1.2 Tenants of homes funded through the AHP 2021 to 2026 are able to buy between 10% and 75% of their home. The requirements for the RtSO are the same as for the new Shared Ownership model, including for:

• buying further shares and staircasing to full ownership
• paying rent
• paying service charges and for maintenance and repairs (including the new 10-year initial repair period – see 12.2 below)

Read more about the new Shared Ownership model in section 1.

12.1.3 The Government also published a guide on the Right to Shared Ownership scheme for tenants on 22 December 2022. This explains how RtSO operates including property and applicant eligibility, how to apply (i.e., each stage of the application process from pre-application to completing a purchase) and the costs associated with Shared Ownership.

12.1.4 The lease for a RtSO home must use the fundamental clauses in the standard Shared Ownership model lease. The only variation will be to the start date for the Initial Repair period (as per 12.2). See section 11.2 for more information about model leases.

12.2 The 10-year repair and maintenance period

12.2.1 Where the RtSO is exercised by a tenant of an Affordable Rent or Social Rent home delivered through the AHP 2021 to 2026 it should comply with all Shared Ownership guidance for AHP 2021 to 2026 homes. This includes the model Shared Ownership lease requirements such as fundamental clauses, the initial rent to be charged, and staircasing opportunities.

12.2.2 An exception to this is the starting point at which the eligibility becomes available, which will see the 10-year repair period reduced according to the age of the home, based on the date of build completion. Homes will be eligible for part of the 10-year repair and maintenance support where:

• the RtSO was exercised during the first 10 years of the home being completed
• eligibility commences from the date that the property converts to being classified as shared ownership
• the eligibility expires at the end of the 10 years (from when the property was completed)

For example, a rented home which was completed six years ago would have a repair and maintenance period of four years remaining at the point of granting the Shared Ownership lease for the RtSO home.

12.2.3 In the absence of other evidence, the date of build completion of the rented home will be evidenced by the date of issue of the Building Regulations Completion Certificate or Final Certificate. However, the expectation is that where there is other documentary evidence to indicate that the actual build completion was a later date - for example, a later Practical Completion Certificate issued by the developer or a warranty document with a more recent build completion date - providers should act reasonably to ensure that the 10-year repair period is not artificially reduced.

12.2.4 Where a RtSO home is more than 10 years old at the point of granting the Shared Ownership lease, references to the Initial Repair Period, Initial Repair Period End Date and the associated schedule / clauses should be removed from the lease to avoid confusion.

12.2.5 The lease for a RtSO home should use the standard Shared Ownership model lease. The only variation will be to the start date for the Initial Repair period (as per 12.2.2 and 12.2.3 ). See section 11.2 for more information about model leases.