Sector bodies endorse Southern Housing’s new subsidised ‘staircasing’ mortgage proposal, describing it as a ‘win-win’ for housebuilding and homebuyers that ’would not stoke house prices’

The National Housing Federation (NHF) and G15 have thrown their support behind a new shared ownership staircasing mortgage model being developed by housing association Southern Housing.

Hackett and Henderson

Southern Housing, led by chief executive Paul Hackett (left) has been developing the model with the support of the National Housing Federation, who is led by Kate Henderson (right)

The London landlord believes the proposed new product could help boost supply by releasing billions of pounds of capital for development via shared ownership equity sales without inflating prices or leading to a leakage of value of social assets from the sector. Kate Henderson, chief executive of the NHF, last night backed the proposal in a statement to Housing Today.

Paul Hackett, chief executive of Southern, set out the idea in an exclusive comment piece for Housing Today this morning.

Hackett, who hopes the government will adopt it, said the new product would enable shared owners to more affordably staircase - buy further shares in their home - up to 100% ownership. The mortgage payments would be comparable to their current mortgage and rent - lower than for loans currently available.

This would be achieved by top-slicing (ie using a portion of) Recycled Capital Grant Funding - grant that is attached to an affordable home that must ordinarily be re-used by social landlords for housebuilding when a home is sold. Guarantees could also be used from Homes England’s new housing bank to bring the cost down, Hackett suggests.

Hackett said if the shared owners are subsidised to buy the full value of their existing homes in line with the Royal Institution of Chartered Surveyors’ red book valuation, the model should not “stoke” house prices in the way previous demand-side products, such as Help to Buy, arguably have.

Hackett said the move would also achieve the original vision for shared ownership of owners acquiring 100% of their home.

But he also said the move could lead to a “massive release” of capital for housing associations through the resulting receipts. He said, unlike mooted proposals to sell shared ownership homes to institutional investors, there would be no “leakage” of social asset value out of the affordable housing sector. Hackett says he believes a “significant proportion” of the estimated £33bn of equity in housing association shared ownership portfoilio would be released.

Subsidised shared ownership staircasing mortgage:  How the model would work

  • The idea is to help existing shared ownership residents staircase to 100% ownership by subsidising their mortgage. The model also aims to unlock billions in capacity for housing associations
  • The subsidy would make a resident’s overall mortgage payment comparable to their current mortgage and rent costs
  • Mortgage lenders provide standard mortgages, but the subsidy would reduce the interest costs for the buyer. Southern believes this could help raise the percentage of shared owners who staircase to 100% - estimated to be around 2% currently.
  • Housing associations would top-slice (ie use a portion of) recycled capital grant funding (RCGF) - grant attached to existing affordable homes that ordinarily has to be re-used for development when homes are sold - to subsidise the mortgage interest to bring the cost of borrowing down for the buyer
  • The use of guarantees from Homes England’s new housing bank could also be used to bring the cost down further
  • The move should not lead to house price inflation as the shared owners would only be subsidised to buy the full value of their existing homes at Red Book valuation.
  • The product would be for existing shared owners only and would be for seven-years
  • Southern believes the move is preferable to selling shared ownership homes to institutional investors as the value of the social asset would be wholly retained in the sector
  • Southern believes a substantial proportion of the £33bn of housing association equity tied up in shared ownership portfolios being purchased by shared owners,

Hackett wrote: “With £33bn of housing association equity tied up in shared ownership portfolios, a surge of staircasing receipts would provide a once in a generation stimulus to housing association land-led development and our ability to acquire homes through section 106, helping to unblock the current section 106 logjam.”  The product would be for existing shared owners only and would be for seven years.

NHF chief executive Henderson said: ”This proposal from Southern is a win-win for both residents and new social housebuilding. Not only will it help current shared owners realise their dreams of 100% ownership, the capital released would support not-for-profit housing associations to deliver new and much-needed truly affordable homes.

>>See also: Why a new shared ownership mortgage staircasing product could unlock billions for housebuilding

“We are currently working with Southern to ensure that these proposals are deliverable and meet the needs of residents. It’s through innovative measures like this that our sector will drive forward our ambitions for a decade of renewal for social housing.”

The G15 group of housing associations, of which Southern is a member, is also supportive of the proposals being developed.

The Ministry for Housing, Communities and Local Government has been approached for comment.

 

 

 

 

 

 

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