Share
Danny Lovey says the revitalised shared ownership scheme could help first-time buyers
The shared ownership solution
I do not agree that young people have lost the aspiration to own a home but there is a gap between the aspiration to own and the reality of being able to.
The problem now is that if they can afford the mortgage, most do not have the deposit and the Bank of Mum & Dad seems to be in a bit of a cashflow crisis itself.
Forced to live at home to save or rent and not be able to save, most young people are between a rock and a hard place. The only good thing is that home prices are likely to remain subdued for the next few years.
For those who have no choice but to rent privately, the big problem is a lack of security of tenure. There is always a chance you will have to move on if the landlord wants to sell the property or you cannot agree a new contract. Such insecurity is not a basis for a long-term relationship or bringing up a family.
For many reasons, I believe shared equity/ownership schemes provide a point where a home may be affordable with a smaller deposit, leading to full ownership is possible and there is provision for security of tenure in the same way as if you were buying the full equity of a home at the outset.
The affordable homes issue has been around for years and the previous Government did have shared equity schemes but they were complex, limited and severely underfunded.
With fewer lenders in the mortgage market and even fewer prepared to lend for shared equity/ownership and a lack of Government funding, the problem is to achieve what would be a solution for many young people, a programme of building a substantial amount of new affordable shared equity/ownership properties, but where is the funding going to come from?
Funding for mortgages could get worse before it gets better.
This brings me back to the question, how do you fund new affordable homes for first-time buyers through shared equity/ownership?
Assuming that somehow the Bank of England and the banks square the circle on refinancing, then maybe it calls for some imaginative thinking to stimulate the housing market to provide new homes, particularly for young people in shared equity/ownership.
What about a revised HomeBuy Direct scheme where you can have a minimum of a 50 per cent share or more, the remaining share financed through a housing association, which gets its funding by issuing medium and longdated bonds to the domestic institutional market with a Government-backed guarantee scheme. Or am I just dreaming?
Danny Lovey is principal at The Mortgage Practitioner
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
View results 10 per page | 20 per page
Most popular
Most commented
Most emailed
-
Private equity firm takes joint control of wrap provider FNZ
-
New draft HMRC guidance suggests advice process will be VAT-exempt
-
Tony Wickenden: Introducing Seis and changes to VCTs and EIS
-
Scot Wids to re-enter IFA annuity market and exit offshore bonds
-
Most people have zero risk appetite, FSA finds
Readers' comments (19)
Anonymous | 3 Sep 2010 2:03 pm
i agree that something is needed to help FTBs to the market, but i would prefer the Government pays down the debt first before turning their attentions to this. i would be angry if funding for Schools and Hospitals went on this type of scheme first.
only realistic opportunity is to get Private industry to fund it, (including Housing Associations) but as we enter a double dip, how many are going to do it, or incur more borrowing to fund it?
Unsuitable or offensive? Report this comment
Evan Owen | 3 Sep 2010 2:07 pm
Do such schemes actually prop up the market without any real benefit for the purchaser? Since 1985 I have seen all variations on the theme, quite often the biggest loser is the buyer, being unable to get out of the deal at the right time for instance.
Unsuitable or offensive? Report this comment
Danny lovey | 3 Sep 2010 2:24 pm
Anonymous seems to have missed the point I was making, what I am saying is that it would be private institutional funding to the housing associations and that way it would not drain away from Government funding. At the moment the HomeBuy Direct is minimum 70 per cent share with government and the builders funding 15 per cent each. That is clearly not sustainable and funding from elsewhere is required and a lower minimum share of 50 per cent in my opinion.
Unsuitable or offensive? Report this comment
Andy | 3 Sep 2010 2:31 pm
"...the big problem is a lack of security of tenure"
So lets try and resolve this issue, rather than invent yet more ludicrous ways to have the younger generation pay over inflated prices for property.
Oh but wait, your a morgage adviser no doubt specialising in this sort of mortgage.
Shared ownership is a con. All the downside of owning (repairs, insurances, negative equiy) and only half of any upside.
Its called tinkering around at the edges people. Not innovation and certainly not going to fix the problem
Unsuitable or offensive? Report this comment
andy | 3 Sep 2010 2:34 pm
"how do you fund new affordable homes for first-time buyers through shared equity/ownership?"
Banks, businesses and even wealthy individuals would be sure to provide this funding if the risk of default was lower.
The riskof default would be lower if the prices paid and therefore the mortgage payments were not so high in the first place.
Unsuitable or offensive? Report this comment
Danny Lovey | 3 Sep 2010 3:15 pm
A good debate opening up here ...
Andy - I agree security of tenure is a problem, but that is renting, with Shared equity you have the same rights as if you owned 100 per cent of the property
Also, it is not a con it is a way for aspirations to be partly satisfied, which is better than no aspirations satisfied and be paying somebody's else's mortgage and having the lack of tenure - you are entitled to your other opinions, which I respect but disagree with.
I have explained already how the funding could be provided
The risk of default is no greater or different than any other housing committment, argruably it could be to the contrary depending on the way the scheme is set up as either shared ownership ir part mortage and part rent or shared equity.
One of the current problems is a lack of lenders in the mortgage market and even less prepared to do shared ownership/equity schemes.
The CML advise that the lenders prefer the shared Equity route which is way I am suggesting that the ONLY scheme rather than the previous mis-mash that should be the standard is a scheme along the HomeBuy Direct scheme. If there was one standard scheme then there would be a better chance of getting more lenders involved in the market.
Danny
Unsuitable or offensive? Report this comment
Anonymous | 3 Sep 2010 3:53 pm
If local authorities only had to provide homes for tenants in receipt of state benefits, funds could be redirected to assisting the lowly paid and first time buyer. The affordable housing market needs 100% LTV capital repayment loans with mortgage indemnity guarantees covering the amount in excess of 75% LTV based on prudent lending criteria. If local government was in a position to fund the MIG fee for this type of borrower, so that lenders are protected by offering a mortgage in excess of 75% LTV, this would considerably assist FTBs and ease up the housing market. The local authority would naturally only need to cover the MIG fee for as long as the mortgage exceeded 75% LTV.
Or is this too radical?
Unsuitable or offensive? Report this comment
Paul S | 3 Sep 2010 6:41 pm
House prices have to be linked to affordability.... as various factors have conspired to artificiality bump up the price of an average FTB home then we get the issue we have at the moment.
Shared ownership is not the answer, as Evan said this merely props up the current status quo....
Unsuitable or offensive? Report this comment
MD | 5 Sep 2010 8:38 pm
Congratulations Danny on an excellent article which has obviously sparked a lively debate! If we are considering a model for how a workable UK wide scheme might operate could I suggest that you take a look at the Co-Ownership Housing scheme which has been sucessfully operating in Northern Ireland for about 30years now and has helped thousands of first time buyers to bridge the difficult first step to home-ownership? The longevity of the scheme means that it has been able to show a track record of proven sucess through a variety of different prevailing market conditions which may address some of the concerns about such a scheme that have been stated here.
Unsuitable or offensive? Report this comment
Danny Lovey | 6 Sep 2010 12:01 pm
Thanks for the continuing comments:
To Paul - whilst I agree with you that house prices are still too high in many ways, just ask yourself why?
It is a simple economic supply and demand answer and in the UK we have had an explosion in the number of people in the land, be it natural, partnership/marriage breakups, aging population, increase in birth rate or of course immigration.
This year the National Housing Federation noted that there has been a 30 per cent decline in house building over the past two years- that around 122,000 homes have been built in the past year - fewer than at any time since 1923 (excluding War years) - that the UK which is well behind in its home building programme needs to build over a million new homes.
The point is Paul that without schemes to increase the supply of homes and make them affordible the upward pressure on home prices will continue to be upwards, albeit becuase of the fiscal situation in the UK I am not expecting this to happen in the short term and indeed would like to see them a little lower. If of course property prices collapsed then we are in a completely different ball game and parodoxly this will create other problems not least in the banking sector.
As I have said I believe a major move on developing shared ownership assists by allowing more FTBs onto the ladder and at the same time counting towards that 1 million homes needed.
To MD in Northern Ireland I would like to know where I could get the information on this scheme
Danny
Unsuitable or offensive? Report this comment