People living in shared ownership properties could be hit hard by a double whammy of rising inflation and interest rates, according to new research
Those who entered affordable home ownership schemes assessed risk in a period of low interest rates, low inflation and stable employment. But researchers say this context is changing with rising mortgage costs and a possible market downturn and recession looming.
Researchers suggest people in shared ownership schemes may be particularly vulnerable due to lower resilience: shared owners showed greater indicators of being vulnerable to financial harm than other mortgagors and were already struggling financially to a greater extent during the pandemic lockdowns.
Shared owners had more indicators of financial vulnerability than other people with mortgages .
Inflation; the implications of inflation-linked rental payments were not transparently explained to many who entered into shared ownership schemes and interest rates; people in shared ownership properties tend to be offered higher interest rates than regular mortgages (due to banks classifying the group as having higher administrative needs and riskier to lend to). Research showed this is typically 0.7% more.
In addition, although shared ownership does help people on lower incomes get on the housing ladder, the low initial costs of shared ownership do not necessarily last.
Over-inflationary rents result in shared owners’ monthly costs approaching those of open market buyers’ costs after 15 years, while at the same time accruing much less equity. This raises questions about the products’ value for money. However, shared ownership limits the impact of negative equity in housing market downturns.
The research, Affordable Homeownership and Risk, from the University of York, supported by abrdn Financial Fairness Trust, looked at different models of home ownership (Right to Buy, Help to Buy and shared ownership) and makes recommendations for improving the products.
Greater proportions of single people, women, people in routine occupations, people with disabilities and lone parents use shared ownership and the Right to Buy (rather than Help to Buy purchasers and those who bought unassisted on the open market).
Dr Alison Wallace, senior lecturer and lead researcher at the University of York’s Centre for Housing Policy, said: “Shared owners can claim housing benefits to help with part of their housing costs and get support from a housing association which is important.
“But greater proportions of shared owners were already struggling with higher housing costs before this current crisis. They will be challenged even more by above inflation rent increases and rising interest rates. Providers, government and lenders could do more to ensure these purchasers are protected.”
Karen Barker, Head of Policy and Research at abrdn Financial Fairness Trust, said: “Affordable home ownership schemes have helped a lot of people on lower incomes to access home ownership. It has been particularly valuable for those living in areas of London and the south east where house prices are high. However, people making decisions on shared ownership need better information about the risks involved if they are to make informed decisions.”
