Shared ownership schemes can be complex and not always fully understood by people who enter into them, a report from a spending watchdog has found.
The schemes offer a government-backed way to support affordable home ownership for those who would struggle to buy a home outright on the open market.
Schemes enable eligible buyers to purchase a property in portions over time, but barriers to doing this can include cost and complexity, the National Audit Office (NAO) said.
Complexities with shared ownership also mean customers can get caught out by issues such as increasing service charges, the report added.
It said that limited government data means it is difficult to assess schemes’ overall performance.
The report set out how shared ownership works in England, with schemes being particularly popular in London and the South East of England. In London, shared ownership homes are often flats, it said.
Different shared ownership schemes are available for different groups of consumers, with eligibility rules and conditions varying.
People purchase an initial share of the property and pay rent on the remaining share to a shared ownership provider, which could be a housing association, a local authority or a private provider.
Over time, shared owners can buy more of a share of the property through a process known as “staircasing”.
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But complexities around service charges and staircasing mean many who take up the scheme do not fully understand the longer-term financial risks, the NAO said.
Customers have reported concerns such as transaction costs that apply each time shared owners want to buy a bigger portion of their property. Costs may include legal fees, valuations and admin fees.
The report said: “As such, shared owners may opt to staircase less frequently and with larger equity portions in each transaction.”
It added: “Shared owners’ abilities to staircase are also linked to house price changes and therefore to what is happening in the wider housing market.”
Shared owners have a long lease, with “all associated obligations including paying service charges”, the report said.
Service charges are payable by tenants and leaseholders to cover the costs of maintenance, management and services in communal areas in buildings and estates.
The implementation of the Renters’ Rights Act, the Social and Affordable Homes Programme and changes to leasehold are designed to improve the experience of shared owners, but also add to the complex picture, the report said.
The report added: “Shared ownership is a complex financial and legal product for consumers.
“There have been criticisms from stakeholder groups about the information given to prospective and current shared owners in the past. These criticisms included a lack of information and concerns about increasing costs relating to service charges, complex lease arrangements and routes of redress.”
The report added: “There is currently no standardised format or terminology for service charges.
“When charges are unclear, it can be difficult for shared owners to contest them.”
More and better data would enable the Ministry of Housing, Communities and Local Government (MHCLG) to determine whether the model is affordable over time and to assess risks across the shared ownership lifecycle, the NAO added.
It also said: “MHCLG told us that staircasing to 100% is not the only positive outcome of the shared ownership model, and that a shared owner who buys a share and stays at a certain level of ownership still gains stability, builds equity, and is typically financially better off than remaining in the private rented sector.”
Gareth Davies, head of the NAO, said: “Shared ownership remains an important route into home ownership, but it is complex, and weaknesses in information, affordability, data quality and redress mean that government does not yet have a full understanding of how the model works for consumers.”
Sir Geoffrey Clifton-Brown, chairman of the Public Accounts Committee said: “Shared ownership offers a pathway into home ownership for those who cannot afford to purchase a home on the open market.
“As a chartered surveyor with a vested interest in this topic, it is wholly unsatisfactory that people who have relied on shared ownership to get a foot on the property ladder have been faced with costs pressures and complexities.
“Rental increases, service charge rises and, in some cases, building safety concerns have led to unsustainable costs over time, with some owners experiencing difficulties in selling their properties.
“If we really want to help people own their own home, it is incumbent on the Government to see how they can make this scheme work better.”
In January, the Government announced that millions of leaseholders across England and Wales stand to benefit from an overhaul of the leasehold system, with ground rents set to be capped at £250 a year.
The move marks the end of residential leaseholders paying over-the-top bills for no clear service in return and it will also make house sales easier for people whose lives have been put on hold because of ground rent terms that make their homes hard to sell, it added.
But the announcement also sparked concerns over the impacts for investor confidence in the housing market.
An MHCLG spokesperson said: “As the report rightly acknowledges, shared ownership has an important role to play in supporting households into home ownership, who would otherwise struggle to afford to buy.
“We are aware of challenges faced by some who have entered the scheme, but we have already strengthened shared owners’ rights, made sure there is greater transparency and fairness of costs, and enhanced data collection.
“We continue to explore what more can be done to improve the experience of shared owners.”