For starters, the paper suggests changing so-called “staircasing” arrangements so that shared owners can buy additional shares in their home in 1 per cent increments (the current minimum is 10 per cent). But, currently, each time an additional “chunk” is purchased, the buyer pays a transaction fee. Could this fee mean purchasing a 1 per cent share won’t be cost effective or practical? Would 5 per cent increments be a happy middle ground?
Another option is to tie-in buying additional shares with remortgaging after two/five years, which could reduce admin costs for lenders each time a homeowner buys more of their property.
However, there are also questions to be answered about how the property value is assessed on each staircasing occasion.
At the moment, when a shared owner wants to sell their property, the landlord or housing association has an eight-week exclusivity period in which to find a buyer, and the government is now talking about reducing this. Even though such a move could speed up sales in areas where there is less demand for shared ownership properties, it’s not clear whether this change will really make much difference.
The government’s paper also outlines moves to encourage housing associations and local authorities to stick to a standard lease for shared ownership properties. The model lease has been an essential part of shared ownership schemes as it enables lenders to help borrowers across the UK without having to adopt separate documentation or procedures that meet the requirements of different local authorities or housing associations. From a mortgage lender’s point of view, any plans to improve standardisation and reduce complexity will be welcome and should encourage more lenders to commit to providing shared ownership mortgages at competitive prices.
Attention to detail
Extra attention in all these areas is vital. Shared ownership has undoubtedly helped thousands of people get on the property ladder over the past 40 years, but it’s also important that other measures are considered to help potential first-time buyers.
For example, affordability rules and income requirements have restricted lenders from offering more affordable mortgages to first-time buyers in many cases. As such, enabling more lenders to offer higher loan-to-value mortgages, that are properly underwritten, would go a long way towards helping members of “generation rent” finally purchase a home of their own.