Share and share alike?

Scott Philipson

June 17, 2006

There are many things in life that are good to share – a six-pack of lager with friends during a football game, or the restaurant bill with your significant other. However, sharing a house with Gordon Brown may not immediately spring to mind of things which belong to that list.

But shared ownership mortgages mean pretty much just that. It is an option the government is pushing to help first-time buyers get onto the property ladder. The malaise of first-time-buyers is a recurring theme in the current market and there is seemingly, as yet, no remedy.

The latest initiative, launched in April 2006, is the HomeBuy scheme, and while this may not be the ambrosia to quench the thirst of those waiting to get onto the property ladder, it aims to give ownership to 100,000 households by 2010.

A viable option?

However, is shared ownership a viable option for those struggling to get afford a first home?

Bob Sturges, director of communications at Money Partners, comments: “It has always been our view that the HomeBuy scheme is well intentioned, but it is operating on too small a scale to work. The only thing that will change the number of first-time buyers is a massive narrowing in the difference between house prices and wages, rather than schemes.”

Affordability is the key issue when it comes to buying a home, and is particularly acute for first-time buyers. Lenders have tried to counteract this in different ways, with increased income multiples and loan-to-values or moving towards using affordability calculations when assessing mortgage applications. However, it seems many lenders have bypassed the shared ownership option.

Halifax is one of the three lenders that have signed up to provide equity for the HomeBuy scheme, but Paul Fincham admits it will only provide a small amount of business.

He says: “HomeBuy is available across the country, but affordability is an issue mainly in London and the South East. Therefore, it won’t be a massive amount of lending but it will supplement our first-time buyer options and it will be another tool for first-time buyers to buy a property.”

However, lending in this area is difficult as there is a lot of work that needs to be done and much liasing with housing associations in many cases. In a recent report into housing finance, the Council of Mortgage Lenders (CML) said: “Schemes such as low cost homeownership schemes and the Starter Home Initiative mostly involve properties owned by local authorities and housing associations and restrictions imposed on future sales have deterred many lenders from participating in this sector of the market.”

Co-operative Financial Services (CFS) recently launched its first foray into this market through Places for People.

David Lowe, product manager, mortgages at CFS, says: “It’s one of a number of ways to help first-time buyers and it is something we would encourage clients to investigate. However, much depends on the individual housing associations. It’s difficult for lenders as they cannot give a carte blanche to say we are going to do all shared ownership lending. We would want to do as much as possible but we also want to provide responsible lending.”

Whose responsibility?

Therefore, is there blame to be apportioned for restricting the options of first-time buyers? Is it the responsibility of lenders to stimulate first-time buyer activity through shared ownership or should the government be more proactive in the area?

Sturges suggests: “Product innovation by lenders is more important than anything the government can do to help first-time buyers. Shared ownership is fine for key workers but mortgage lenders are more important in stimulating the market.”

Paul Fincham says it is a bit of both. “Lenders have to offer the products and that’s why we work with intermediaries and our branch network and they feed back to us what is happening. Also, there is a policy role as the government have to deal with the issues and the one at the minute is affordability.”

Affordability is at the crux of the argument. People being able to afford property, whether through shared ownership, 100 per cent mortgages or stepped interest mortgages, is a challenge and many believe owning their own home is out of reach until later in life.

However, this is where people’s attitudes are to blame. The English have always been told that their home is their castle, but whichever part of the UK you are from, there seems to be a belief that owning your own home is a right.

Sturges explains: “There has to be a change so it is an aspiration to own a home, rather than a person’s right. Home ownership in the UK is very high, upwards of 60/70 per cent, and all the polls you see also suggest that 80 per cent of people want to be homeowners. This difference of 10 per cent means there exists a pool of people for the future who will want to own their own home but currently do not.”

Reaching the target

This may be another social cancer inspired by Margaret Thatcher (depending on your political opinion) but it now seems normal for people to want their own home and there are many out there who current strive for this. However, with the government targeting 100,000 new homeowners through HomeBuy over the next four years, will it reach this target?

Lowe comments: “The government has got an agenda to get people onto the property ladder as it wants them to have an asset to fall back on in 40 years time. It is pushing this agenda but it should be doing more if it wants this to work.”

Michael Brill, director of Baronworth Investment, also believes that the scheme is being held back. He explains: “It is very hard to afford property now, especially near London, so there should be no shortage of customers needing help. However, I would wonder if the government has an efficient and suitable administrative arm to cope.

Therefore, if the government is not promoting the scheme and lenders are showing reluctance due to the plethora of pitfalls to work in this market, is the scheme certain to fail?

Lowe believes: “It’s still very early doors for shared ownership as people don’t understand what to do and there has not been much exposure; maybe just a couple of articles in newspapers and the trade press. Until things start happening to change this at the grass roots level, with those involved promoting it, and mortgagelenders and housing associations start working together, it won’t change.”

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