In its consultation on proposed changes to shared ownership, the government floats the idea of introducing a standard model for all providers to use.
It notes that while most shared ownership homes are delivered and managed using the model lease, some providers are offering homes in a different format which is “creating confusion for consumers and may limit lending, preventing the tenure from attracting mortgages at the same interest rates as a home bought on the open market”.
The consultation document adds: “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.”
Few buyers even know it exists
Jane King, mortgage adviser at Ash Ridge Private Finance, said that there is currently a “good mix of lenders” in the shared ownership space, but that more competition would be welcome.
However, it is not just the number of lenders involved in the sector that needs to improve, but education about shared ownership too, according to King.
She explained: “It still amazes me how little buyers know about how it works and even that it exists. Help to Buy is much better known as a product even though for most borrowers, shared ownership is a more affordable way to get on to the housing ladder.”
Make selling shared ownership properties more simple
Hilary McVitty, head of external affairs at the Building Societies Association (BSA), noted that the majority of mutuals already offer shared ownership mortgages, but the “potential extension of the depth and breadth of this market is a positive step”.
She added that standardising shared ownership, including a focus on creating a secondary market in shared ownership properties, could increase interest in the sector.
“One of the things that has held this market back in terms of scale are the challenges inherent in selling – normalising this makes a lot of sense. One inhibitor of the growth of shared ownership as a tenure is the lack of availability on the open market,” she concluded.
Kate Davies, executive director of the Intermediary Mortgage Lenders Association, said the standard lease has been “an essential part of this scheme” as it allows lenders to avoid having to adopt separate documentation or procedures across the country.
She continued: “It is already used in the vast majority of Shared Ownership applications and we are interested to see the specifics of what the Government has planned with its proposed new standard model lease.”
Davies also highlighted that current affordability rules have hindered lenders from offering more affordable mortgages to first-time buyers.
“Enabling more lenders to offer higher loan-to-value mortgages, that are properly underwritten, would go a long way towards solving this problem,” she added.
However, brokers did raise concerns over the government’s idea to make it possible for shared ownership buyers to increase their stake in one per cent increments.
King noted that legal fees for purchasing an additional share can come to around £500, with a compulsory valuation fee of around £200 on top, and questioned what buyers would “stump up that sort of money” just to increase their share by one per cent.
She added: “I do hundreds of staircasing calculations and mortgages each year and unless you want to buy around 15 per cent it’s just not economically viable. In addition 99 per cent of people borrow funds to staircase so there will be lots of remortgages with tiny amounts of additional borrowing.”
This was echoed by Trussle CEO Ishaan Malhi, who urged the government to ensure any changes would be “financially beneficial” for mortgage borrowers due to the extra charges involved when staircasing.