Will conflict in the Middle East reboot private shared equity? – Pierson

But after six months, Rezide hasn’t yet gained the traction brokers wanted to see, despite a huge amount of effort and collaboration between the housebuilders and lenders involved.

Could that change as the conflict in the Middle East pushes up the cost of borrowing, making private shared equity schemes look more attractive?

Rezide’s aim, like Gen H’s New-Build Boost, is to offer an industry solution to the absence of a government-backed shared equity scheme.

There have been calls for the return of Help to Buy, the loudest unsurprisingly from the housebuilding sector, but there’s no indication that is likely to happen – yet. The market, instead, has used its initiative and designed its own.

It’s still early days, and arguably it’s had a limited roll-out, but I have yet to hear any rumblings that there are other lenders waiting to join Barclays and TSB on the scheme.

Sponsored

The growth of ‘just-off-high-street’ lending

Sponsored by Pepper Money

The industry has been crying out for an alternative to Help to Buy, yet results have been somewhat underwhelming.

I think this is, in part, down to cost, cost to the borrower – the equity loan interest rate is 4% from day one compared to the Gen H equivalent product, which is 0% for life. And there is also the cost to the builder to consider.

But timing, I would say, has also played a big part. Perhaps there are now opportunities to innovate in more cost-effective ways.

It feels like we’re on the cusp of a new era of mortgage lending and the first wave of policy changes from the Financial Conduct Authority’s (FCA’s) Mortgage Rule Review is expected this year.

With no other banks or building societies publicly announcing their intention to launch into private shared equity, the inference is that lender appetites and priorities may lie elsewhere.

It’s quite possible that lenders are waiting to see what flexibilities there are in the new lending rules so they can use existing products and systems, rather than stand the costs of the design and development of brand-new mortgage schemes.

Whenever I speak to lenders, they always have a whole catalogue of things they want to do, categories of borrowers they want to serve, but they only have a limited amount of development time.

So while exploring a private shared equity scheme may be on their list of interesting areas to look at, it is competing with a lot of other ways to support borrowers, some of which could be much more straightforward to implement and therefore less costly.

Geopolitics is a complicating factor

But, while just a few weeks ago, it may have seemed that the time for mainstream high-volume shared equity lending might have passed, the conflict in the Middle East and the impact it has on mortgage rates could have provided a reboot.

It’s been said that a week is a long time in politics, and perhaps the same can be said about the mortgage market. The war has reignited mortgage interest rates, and as a result, monthly repayments are climbing.

This is expected to be temporary – dependent upon how long the conflict endures.

It could mean, however, that suddenly private shared equity schemes become more attractive as viable alternatives to purchasing outright. This is because buyers using the schemes are borrowing less to purchase a property – affordability and repayments are based on a loan amount of 80% of the property value.

And this is why innovation is always welcome. In a global village, you never quite know what’s around the next corner or how geopolitical events will shape the UK market. One thing we do know is how committed our industry is to innovation, showing how builders, lenders and investors are prepared to work collaboratively to support homeownership.

Here, we should not feel deflated if some ideas don’t immediately take off – it’s about evolution, not revolution, and it’s better to travel hopefully than merely arrive. Long may it continue.