For occupiers, Shared Ownership is an affordability scheme that offers a flexible solution for aspirational home owners who cannot afford to buy a property on their own. A household can buy an initial share of a new home, from as little as 25% and up to 75% of the property value, with (or without) a traditional mortgage. Over time, households have the option to increase their share in the home, incrementally. A subsidized rent is paid on the remaining share, increasing in line with inflation. This enables aspirational home owners onto the housing ladder at a lower cost.
For investors, Shared Ownership offers an expanding opportunity to secure the potential for long-dated income, with low operating costs and added house price exposure. An inflation-linked rent is received on the investor’s share of the property, typically set at 2.75% of the market value of the unsold equity with annual contracted rental uplifts that should not exceed a maximum of inflation plus 0.5% per annum. This is set as a guide by the government to ensure rents are at a subsidy to market rents, which facilities affordability for the occupier when combined with capital repayments on the mortgage element. Should an occupier choose to increase their share, the investor is able to realise the current market value of that proportion of the property, in turn, capturing any house price growth.
Shared Ownership is well placed to provide a reversionary investment in a challenging market and offers the benefit of portfolio diversification, owing to the low correlation between residential and other asset classes. Investors are also able to help fulfil an important social need by providing more affordable, sustainable housing and access to the housing ladder for key workers and the young employed.
Our strategy targets Shared Ownership homes in areas of acute need, typically close to centres of strong economic activity and good transport networks. Investments include a mix of standing stock, forward-purchase and forward funding development opportunities with large scale housebuilders and housing associations. We are seeking to generate a long-term total net return of 5-7% pa with a target annual 3% distribution yield.
M&G Investments is well positioned as a Shared Ownership partner, having managed residential and Shared Ownership assets since 2000, with an extensive network of industry relationships. The strategy is managed by our Head of Residential Investment, Alex Greaves, together with Assistant Lead Fund Manager, Chris Jeffs. It will form part of our well established residential platform, operating through a For Profit Registered Provider.