Shared ownership lawyer, Chloe Hawkes, discusses shared ownership rent reviews, and the changes made under the 2023 Shared Ownership Rents Reform.
When you purchase a shared ownership property, you will only acquire a portion of the property. The remaining share is owned by the Landlord, otherwise known as the Housing Association, Registered Provider or Affordable Housing Provider. You will pay the Landlord rent on the share they own, known as the Specified Rent. In accordance with the Shared Ownership Model Lease on the Homes England Capital Funding Guide, the Specified Rent is to be reviewed annually, usually each April, in line with RPI (plus 0.5%).
Inflation is the measure of the increase in cost to the consumer of goods and services over a certain period of time. There are currently two measures that are in place - RPI and CPI.
RPI, otherwise known as the Retail Price Index, is one of the two available measures of consumer inflation. It is calculated by the UK’s Office for National Statistics (ONS). RPI is designed to measure certain types of cost escalation. Whilst RPI is not deemed to be a “national statistic” it is still used to calculate such things as cost of living and wage escalations, tax allowances, mobile phone tariffs, car tax, social housing rent increases and wage rates as part of employment negotiations. On the basis that RPI is impacted by inflation, it is not possible to determine future costs, which makes predicting future shared ownership rent reviews difficult.
CPI stands for the Consumer Price Index and is the other measure that is available to measure inflation. It was introduced in 1996 as the Harmonised Index of Consumer Prices (HICP). HICP’s name was changed to CPI in 2003. CPI is used to determine items such as state and public sector pensions, PIP (Personal Independence Payments), attendance and job seeker’s allowance, universal credit, housing benefit, income support, statutory maternity and paternity pay, statutory sick may, and much more.
The Government have stated they recognise that RPI is an outdated measure of inflation. On 12 October 2023, the Shared Ownership Rents Reform 2023 came into force. It was decided that Specified Rent within the Shared Ownership Model Lease (where the Housing Association’s funding was granted for the 2021-2026 window) would now be reviewed in line with CPI. Rents can now be increased once a year by no more than the CPI plus 1%.
The idea is that by changing the rent review from RPI to CPI that providers will have more flexibility when it comes to protecting shared owners from high rent increases during high periods of inflation. Providers are able to use their own discretion to determine whether they wish to increase the rent by less than CPI plus 1%.
The floor for shared ownership rents increases has also been reduced from 0.5% to 0%. This means that if CPI is minus 1% or lower, the rent cannot be increased.