London mayor proposes planning changes to preserve discounts on market homes and cap shared ownership prices

The mayor of London is considering new planning guidance to ensure that any discounts to homes purchased via the discounted market sale (DMS) model of affordable housing are passed on to subsequent buyers, and may introduce a "formal cap" on the value of homes sold under shared ownership, according to a consultation document.

London mayor Sadiq Khan (Getty)
London mayor Sadiq Khan (Getty)

The mayor of London Sadiq Khan this week published a consultation document examining the future of intermediate housing delivery in the city.

The document said that such housing "is traditionally defined as affordable housing which is targeted at people who are unlikely to access homes at social rent levels, but who are not able to afford to buy or rent an adequate home on the open market".

The consultation said that the two types of intermediate homes "preferred" by the mayor of London are London Shared Ownership and London Living Rent.

However, other models - Discounted Market Rent, Discounted Market Sale [DMS) and Shared Equity - are supported "where they are genuinely affordable".

Under London shared ownership, the document said, purchasers buy a proportion of the home (generally a minimum of 25 per cent) with a mortgage and deposit and pay rent on the rest.

It added that London Living Rent homes are intermediate rented homes for which rents are set at or below benchmarks published by the Greater London Authority, which are based on a third of local household incomes.

Discounted market rent are intermediate rented homes for which rents are usually based on a proportion of the market rent, the document said, while discounted market sale are homes which purchasers buy at a discounted price.

The document added that shared equity includes homes which are "usually offered in estate regeneration projects to support leaseholders to return to an estate".

The document said that, while there are "not a significant number" of DMS homes being delivered in London, "it is important to ensure that where they are delivered that the discount is passed on to the next buyer to ensure that they remain genuinely affordable in future".

The document said that, in order to "support local planning authorities in enforcing this, and to ensure that developers have clarity on expectations, the Greater London Authority could introduce guidance on how any DMS homes which are delivered in London should be secured in perpetuity".

It said that this "would help to ensure that where these homes are delivered, they provide a lasting benefit for Londoners".

The document said that the guidance could include:

  • A requirement to include a clause in the head lease of any DMS homes "which restricts any subsequent sales to those within the income caps set out in the London Plan (Intend to Publish version)".
  • Setting out "a clear requirement in any section 106 agreement that the discount offered on the home should remain in perpetuity, and expectations for how homes will be valued".
  • Setting out in the section 106 agreement "the level of subsidy to be repaid to the local authority if the home is eventually sold on the open market".

The consultation asked whether such guidance would "be effective in ensuring that DMS homes are secured in perpetuity".

Elsewhere, the guidance also mooted a possible "formal cap" on the "open market values of shared ownership homes".

The document said that the mayor's Affordable Housing and Viability Supplementary Planning Guidance published in 2016 "provides some guidance on values of shared ownership homes, stating that 'shared ownership is not appropriate where unrestricted market values of a home exceed £600,000".

This is to ensure that mortgage costs remain affordable to buyers.

However, it added that "analysis shows that in some expensive areas of London, rising house prices mean that some shared ownership properties are exceeding this amount".

In 2017/18, the consultation document said, 18 per cent of new shared ownership homes had an open market value above £600,000.

The document said that "one option to ensure affordability of shared ownership homes is to introduce a formal cap on the open market values of shared ownership homes".

This "could help to ensure that these homes are only developed where they are affordable to households at a range of income levels, not only those at the top of the eligibility bracket", the document said.

The document said that any changes would be introduced "through the mayor's planning powers".

The consultation runs from 4 August to 11 October 2020.

A Planning feature looking at Khan's record on affordable housing delivery can be read here.

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