The change has been announced alongside an upcoming rejig of the shared ownership scheme which will make it easier for homeowners to purchase additional shares in their property and to encourage more lenders into the market.
It is hoped the overhaul will give more lenders the certainty to enter both markets.
Reforms to the planning system to increase housing delivery and make home ownership more affordable for first-time buyers, particularly in the most expensive areas, will also be considered.
This could include increasing the number of homes sold at discounted prices to people trying to get onto the property ladder, which the government argued would help build local support for new development.
The Ministry of Housing Communities and Local Government (MHCLG) said the package of measures would help people on lower incomes get onto the housing ladder.
Help to Buy
From today, homeowners buying a property under Help to Buy will be able to take out a 35-year mortgage after MHCLG removed a barrier preventing people taking out a mortgage with a term of more than 25 years.
The change means homeowners can reduce their monthly mortgage repayments by spreading their borrowing over a longer period.
Homes England director of Help to Buy Will German, said the decision to extend the mortgage term had been driven by lender demand.
“Lenders told us our agreement to match or extend our equity loan to the main mortgage loan term was critical to giving them the confidence to offer re-mortgage products to Help to Buy customers,” he said.
“Under our new policy, if the customers’ re-mortgage runs for longer than the standard 25-year Help to Buy: Equity Loan term, then we will automatically extend ours.
“This move opens up the Help to Buy re-mortgage market to more lenders. It offers more choice, more options and better outcomes for these customers.”
Trade Association UK Finance worked alongside Homes England on developing this new policy.
UK Finance director of mortgages Jackie Bennett added: “The new changes provide certainty for lenders and should also attract new entrants to the market, providing greater choice for customers who are looking to re-mortgage under the Help to Buy Scheme.
“This is a great example of public and private sector engagement and we look forward to continuing to work closely with Homes England in the months ahead.”
The government will review a new national model for shared ownership to make it easier for people to buy more of their own home, including allowing them to buy in one per cent increments.
At present, homeowners will have to buy an increased share, or staircase, in 10 per cent chunks.
The consultation published today also proposes a standard model for shared ownership schemes so that it “is easy for the consumer to understand, and will encourage new entrants in the market to build and run shared ownership”, MHCLG said.
“We recognise that widely available, competitive mortgage finance is a crucial element for consumers so we want to develop a single version of shared ownership that all providers can confidently deliver at scale.
“This should remove the complexity and encourage more lenders and challenger banks to commit to providing mortgages at competitive prices,” it added.
MHCLG was not able to give a timeline for introducing the changes and admitted that they would not apply to those who have already purchased through the scheme.
It told Mortgage Solutions that it wanted to implement them as quickly as possible.
“Government funding will be considered at a future fiscal event but we want banks and other lenders to think about the products they offer to shared owners,” the department said.
It added that it wanted its new model for shared ownership to be applied to everyone entering the scheme, noting: “A new standard model lease will give all new shared owners confidence that that they will benefit from these changes, and lenders stability over what the shared ownership product is.”
Target in jeopardy
The government has been consistently criticised for failing to build enough homes and in June the Public Accounts Committee unveiled a scathing report which said its target of 300,000 new homes a year by the middle of the next decade was in ‘jeopardy’.
Housing secretary Robert Jenrick MP said: “We know that most people still want to own their own home, but for many the dream seems a remote one.
“My mission is to increase the number of homes that are being delivered and to get more young people and families onto the housing ladder, particularly those on lower incomes.
“That’s why I am announcing radical changes to shared ownership so we can make it simpler and easier for tens of thousands trying to buy their own home.”
Post Office Money retail banking product director Ross Hunter said: “It’s important that we take steps to enable people from a variety of economic backgrounds to find routes on to the housing ladder.
“In 2018, a first-time buyer household income in the UK was £48,289 on average, and the average cost of a property in the UK was £282,713 – it can take years to save for a deposit and 69% of first-time buyers will depend on additional help from their loved ones to save the necessary funds.
“Any step to support people on lower incomes in their journey to realise their aspiration of owning a home is welcome,” he added.