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Key opens the market

Nicola York finds that the affordable housing sector is thriving despite media confusion about covenant conditions

Key workers do not find it hard to get mortgages when buying affordable housing, according to the Office of the Deputy Prime Minister, which claims that recent reports in the national media are misleading.

The reports said that many lenders are turning down mortgage applications from key workers due to restrictive deeds of covenant. It was claimed that lenders are worried that if properties are repossessed, it would be difficult to sell them on due to these restrictions on conditions of sale.

But both the ODPM and brokers say this is not the case.

The ODPM says these reports have arisen due to the rising number of private developers which are “jumping on the bandwagon” and marketing property as key worker housing when it is nothing to do with the Government- funded scheme.

ODPM press officer Natalie Pain says: “People get confused because they think these houses are part of the Government scheme but they are not and it frays the edges of what our scheme is about.”

SPF Sherwins, a broker which has been working in the affordable housing market for over a decade, is adamant that there have been no problems in securing mortgages under the key worker scheme. Director Richard Stone says: “Lenders are not scared off by these deeds of covenant. We talk regularly with the ODPM and also the housing corporation and I know the ODPM speak with the CML regularly and get a good hearing. There are enough of the big lenders in the market to look at these schemes for it not to cause a problem.”

Nationwide says it rejects about 10 per cent of key worker mortgage applications because the terms of the deed are too restrictive. But the ODPM says there should be no problems with the deed of covenant because there is a standard deed for all properties and this was produced in consultation with CML.

It says the standard deed does not bind the owner to sell the property to another key worker at reduced price but they are required to market the property to other key workers for a period of eight weeks, after which the property can be put on the open market.

Stone says most housing associations refer people to specialist financial advisers who understand the market. SPF Sherwins has a regular slot at key worker seminars run by the housing associations where they explain the process to get a mortgage. He feels it is one of the few areas where it is necessary for customers to take advice from specialist brokers who understand the affordable housing market.

One area which Stone thinks could be improved upon in the key worker living scheme is the “archaic” rule which states that the scheme will only accept banks or building societies as lenders.

LMS Packagers says this rule can be an obstacle for applicants who have a poor credit rating and can only get accepted by a mortgage lender such as SPML or Future Mortgages.

A spokeswoman says: “Not everybody has got the credit score to go with one of the high-street lenders. You would have to have very clean credit to get an Royal Bank of Scotland mortgage, for example, so if you had never had a credit card or a loan and you were someone who had lived in rented accommodation then you would probably not pass their credit rating.”

Stone says housing associations often do not look favourably on sub-prime lenders. “The housing associations will look at each case on its merits and they do have this caring approach sometimes. If people have been in a financial mess, they do not want to escalate the situation by allowing them to use certain lenders,” he says.

The ODPM says banks and building societies are currently the only lenders acceptable under the KWL scheme to ensure that Government money is secure but it says it will be looking at updating this rule to include specialist lenders now they are regulated by the FSA.

John Charcol senior technical manager Ray Boulger thinks more lenders need to enter the affordable housing market to offer a wider choice of mortgages.

Stone is optimistic that this will happen. He says: “We had a meeting with some of the big lenders recently and they are all looking at it. I think they have underestimated the size of this market. It is colossal. It has been growing steadily, which is why we latched on to it and it has just been escalating ever since.”


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