What is shared ownership and how has it become more prominent within the modern mortgage market?
Going back to the basics, this scheme offers borrowers the ability to obtain a level of home ownership through purchasing a share of a property, with rent charged on the remainder.
This is seen in some quarters as an additional tenure to homeownership, social rented and the private rented sector.
With shared ownership offering the ability to purchase additional equity (via staircasing), there is the option to increase the owned proportion in-line with any potential increases in income, affordability allowing.
So, the flexibility offered to the consumer is that they can purchase an initial share without having to staircase, buy out part of the remaining share or staircase in full – depending upon the scheme in question.
One of the main reasons for the rise in prominence is due to incomes failing to keep pace with house prices.
This has placed an even greater emphasis on low cost housing to help individuals move into mainstream property ownership, a factor particularly pronounced in London and the South East.
And, from feedback generated within intermediary circles, it has come to our attention that more firms than ever are targeting shared ownership as a growth area.
Not just for first-timers
So, what can intermediaries do to stimulate interest and generate more shared ownership business?
The availability of shared ownership mortgages has greatly improved in recent times: product numbers are larger, lender numbers have increased, and loan to values (LTVs) have also risen.
This has opened-up the market to more potential homebuyers who are looking to enter at their earliest point.
But, it’s essential to point out that this is not only a product aimed at first-time buyers, shared ownership can prove a valid option throughout the lending bands.
Further down the lending scale, this can also be a viable route for later life couples who have split and want to buy again as they prefer – and have become accustomed to – home ownership.
In such cases, shared ownership may be the only option to stay in the location they desire while on the income levels currently being achieved.
One way to target the right borrowers is to build client profiles where shared ownership could be applicable, and really get to grips with how it can work over the short and longer term.
This means considering property prices, location, age, deposit levels, lending options and personal circumstances – among other things.
As a side note, while the rent paid on the un-owned share should be cheaper than the cost attached to a private market rental equivalent, consideration must also be given to additional costs that may apply, such as ground rent and service charges.
Education is key to growth
On the surface this is a relatively simple concept, but all too many borrowers don’t fully understand it, especially when it comes to the younger generation.
Last December YouGov research commissioned by Leeds Building Society found that young people aged 18 to 24 were the least aware of shared ownership as a way of helping people unable to afford a home, despite being the group most likely to benefit from the scheme.
However, once made aware of the correct definition, almost a quarter said they would be ‘very likely’ or ‘fairly likely’ to use the initiative in the future – the highest among the age groups surveyed. Awareness of the scheme was found to increase with age.
Raising awareness around shared ownership is of primary importance to Barclays and intermediaries play a vital role in this process.
This is a growing appetite among borrowers, but we need to work together so we can reach even greater numbers.