Under the shared ownership scheme houses are acquired by a local authority and leased to the shared owner, who purchases at least 40% of the value of the house and rents the remaining equity from the local authority. The local authority finances the transaction by borrowing from the Housing Finance Agency. The shared owner must purchase full ownership within 30 years.
For transactions commenced on or after 1 January 2003, the annual rent is calculated at 4.3% of the value of the local authority equity and the rent is increased by a fixed 4.5% on 1 July each year. The rent is used to repay the cost of the local authority equity to the Housing Finance Agency and, depending on the level of mortgage interest rates obtaining, may also increase or decrease the capital outstanding on the local authority share at the end of each year. These arrangements represent a significant improvement on the previous terms of the scheme for the shared owner.
The rental formula applied under the scheme is not comparable to rents in the private rented sector, which are determined by the operation of the market. Therefore, movements in private sector rent levels would have no relevant bearing on the calculation of the rental element under shared ownership. The terms of the shared ownership scheme are kept under review by my Department.