Home ownership has plummeted for younger generations, with 38 per cent of 25- to 34-year-olds owning their own home, down from 55 per cent 10 years ago.
The evidence suggests it is the upfront cost of purchase, including the size of deposit, that is holding buyers back, rather than monthly mortgage costs. The average first-time buyer deposit stands at an astonishing £44,635, according to the Office for National Statistics (ONS).
However, once this hurdle has been overcome, repayments only account for 17 per cent of a first-time buyer’s income.
Is shared ownership the silver bullet?
The government has sought to ease the problem for first-time buyers, through the removal of stamp duty and the introduction of the Help to Buy scheme.
The industry has sought to provide innovative solutions to tackle the core problem of deposit-constrained buyers through the provision of shared ownership mortgages. For some reason though, shared ownership seems less well known, and it shouldn’t be.
There are already around 200,000 shared ownership homes in the UK and given the government’s commitment to supporting building affordable homes, we can expect this figure to increase.
In 2015 the government announced a target of building 135,000 shared ownership homes, superseded by a £9.1bn commitment for affordable homes.
In the 2019 spring statement, a further £3bn in funding support was guaranteed for housing associations.
Brokers should therefore be prepared to see a higher number of shared ownership applications.
What brokers need to know
Shared ownership cases are not straightforward, and not all lenders support this type of mortgage. The complexity of the case, expertise required and the on-going relationship with housing associations, means many mainstream lenders’ more rigid lending criteria and automated underwriting struggles to support lending in this space.
It is vital therefore for brokers to know which specialist lenders they can turn to for flexible criteria and how lenders’ propositions match up to their clients’ needs.
Brokers need to:
- Consider whether there are restrictions on how much a buyer can borrow from a particular lender to increase the share they own in the future or whether another specialist has criteria more suited to the client’s circumstances. If a buyer plans on purchasing more of the property, what percentage do they wish to purchase and at what loan to value (LTV)? These aspects could all affect the rates they are offered.
- Explain concepts in much more detail, such as staircasing where additional portions of the property are bought, and rental costs as well as mortgage costs to help borrowers make informed decisions.
- Detail the relationship between the housing association and shared ownership homes and what this means for prospective buyers when they come to sell their home.
As house prices continue to push more prospective homeowners into longer periods of renting, shared ownership is an under appreciated option to help prospective buyers take their first step on the ladder.
Moreover, it provides yet another opportunity for brokers to add value to their clients, cutting through the complexity.
For it to become more fully entrenched in the marketplace, awareness of how shared ownership mortgages differ from traditional mortgages and the opportunity they provide buyers must become clearer.