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Shared access

Mansfield Building Society’s launch of a 100 per cent mortgage in a shared-ownership deal has thrown a spotlight on shared-equity schemes, which can be difficult to access for first-time buyers due to lenders’ restrictions.

A Royal Bank of Scotland survey found that 49 per cent of mortgage advisers say the biggest concern for clients is getting a deposit.

Email Mortgages chief executive Michael White says: “The Mansfield announcement is a big positive because it shows another lender is prepared to deal with first-time buyers without the need of a big deposit and the borrower still has the option of buying out the social landlord over time.”

But London & Country technical manager Richard Morea says although the Mansfield deal is good news for people looking to buy in Yorkshire, advisers with clients in other parts of the country will have to look out for deals.

Lenders approach shared ownership and equity in a variety of ways. The Council of Mortgage Lenders says shared-equity schemes, like Homebuy Direct, are more popular with lenders.

In such schemes, the house purchase is jointly funded by a mortgage and an equity loan, normally from a housing association, helping protect the borrower and the lender from negative equity.

Shared ownership, on the other hand, is where the borrower takes out a mortgage to buy a leasehold covering part of the property while continuing to pay rent on the remaining share, which is owned by the local authority or housing association.

The CML says lenders are more wary of shared ownership because it is complex and there is no clear process for dealing with borrowers in arrears.

The Mortgage Practitioner principal Danny Lovey says: “I like the principle of shared ownership. It provides a niche for those who do not want to live in rented accommodation and who aspire to their own property but cannot stretch to it.”

But Lovey warns that it can be difficult for borrowers to access the schemes. He says: “The trouble with Government schemes is that the funding is gone before the paperwork is even finished.”

Most of the schemes are only available with newbuild properties, which deters many lenders from getting involved.

Lovey says: “There do not seem to be enough lenders who are unprejudiced against newbuilds.”

Halifax for Intermediaries was recently criticised by brokers when it launched an affordable housing product range, including a shared-ownership product offering up to 90 per cent loan to value with reduced fees .

Advisers branded the deals “illogical” because the lender has an LTV limit of 80 per cent on new-build properties.

Morea says finding the right mortgage deal to suit a shared-equity or shared-ownership scheme can be tricky.

He says: “The schemes are open to any lender but not all lenders support all schemes. Royal Bank of Scotland will do shared equity but not shared ownership while Abbey is the reverse. Then there are issues over how much of the borrower’s share they are prepared to lend.

“RBS will lend 100 per cent of the borrower’s 75 per cent share while others might only lend 85 per cent of that share.”

Morea says Nationwide, Leeds Building Society and Halifax will lend on both shared-equity and shared-ownership schemes but all at differing LTVs.

He says: “Typically, where a lender is prepared to do both, they will lend a smaller percentage of your share on shared ownership.”

Morea adds that it becomes a play-off between LTV, lending restrictions and rate. “The difficulty is in finding the right combination. If you are buying shared equity, is it better to go with a lender that will lend you 100 per cent of your share so you do not have to find a deposit but the rate may not be as good, or another lender who will only lend you 95 per cent but might have a cheaper deal?”

Morea says even if a borrower manages to pass all the criteria, other problems can emerge, such as where the lender already has too much exposure to a particular housing development or area.

John Charcol senior technical manager Ray Boulger says borrowers also need to consider that although the rent on Government shared-ownership schemes is below normal market rent, the borrower will be 100 per cent responsible for any repairs and service charges, unlike rental tenants.

He says: “Those payments, together with the mortgage, may not save the buyer anything.”

But Boulger adds that the shared deals do at least offer hope for some FTBs. He says: “For some borrowers, they make it easier to afford a more expensive property. For others, they are the only means by which they can afford a property at all.”

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