This week the government confirmed it was introducing changes to the way that rents are calculated with shared ownership properties, bringing them in line with rents on other kinds of social housing.
It comes after reforms were introduced around staircasing and the minimum stakes needed for shared ownership purchases.
And brokers told Mortgage Solutions that shared ownership has an important role to play for first-time buyers, particularly now that Help to Buy has been withdrawn, with brokers acting as educators around the scheme.
Opening up home ownership
Lee Gathercole, co-founder of Rebus Financial Services, said there was “absolutely a demand” for shared ownership, particularly among first-time buyers.
He continued: “With property values where they are, even despite recent falls, it’s the only real opportunity some first-time buyers have of getting on the ladder, particularly those that are buying on their own.”
Aaron Strutt, product and communications director at Trinity Financial, noted that while there was demand from buyers, enquiry levels at his firm had dropped from previous levels.
He continued: “There is a bit of a stigma surrounding shared ownership and it is understandable – we try to recommend borrowers take a standard mortgage if they can.
Help to Buy took over from shared ownership and it dominated the market.”
Do borrowers understand shared ownership?
According to Gathercole, one of the biggest obstacles faced by the shared ownership scheme is the fact that many simply don’t understand it. This is due to the various factors involved with the scheme, such as share percentage, service charges, ground rent and shared ownership rent.
He continued: “It’s a bit of a minefield for most and it is generally left to brokers to educate buyers.”
The importance of the education role played by brokers with shared ownership was also emphasised by Strutt.
He explained: “Many borrowers still do not understand shared ownership fully and they like to have the process and products explained to them.”
Richard Dana, co-founder and CEO of Tembo Money, noted that there is often more competition for the more popular shared ownership developments, since there are much fewer options compared with Help to Buy scheme developments.
He said that his firm often finds that borrowers have a negative view about shared ownership from the start, due to issues with restrictions, service charges and the perceived value.
“Once we’ve been through the benefits/risks certain customers seem to be more comfortable with it, particularly those with no other options particularly support from family,” he added.
There have previously been complaints raised by buyer groups around whether shared ownership schemes are being presented in a misleading way. Last month the Advertising Standards Authority ruled against L&Q over one of its shared ownership ads.
Breaking through barriers
Scott Taylor-Barr, financial adviser at Barnsdale Financial Management, said that he had helped his son purchase his first property this week using the shared ownership scheme, noting that it was the only way they would be able to afford to move out of rented accommodation.
Taylor-Barr argued that shared ownership should play a much bigger role within the mortgage market, but had “several headwinds it has to overcome” in order to do so.
He explained: “It suffers from a lack of real exposure for many in the public, there is a lack of lenders operating in the space ‒ hats off to those that do, but it needs more involved ‒ and Housing Associations seem to make the process more difficult and frustrating that it needs to be, by adding another layer of bureaucracy to wade through.”
More to do for lenders
If shared ownership is to grow in importance, then it’s important for greater numbers of lenders to enter the market, argued Gathercole.
He suggested that competition for borrowers looking to purchase with only a small deposit of around five per cent “is very limited”.
“I think it would be better if we had more mortgage lenders available with a lower deposit and for those with a less-than-perfect credit score as this seems to be most first-time buyers,” he continued.
Strutt suggested that the number of active lenders in the shared ownership market was sufficient, though noted that the level of choice open to a client will vary based on their circumstances.
“The smaller the deposit, the fewer options that are available,” he added.
Dana said that while there is a “good handful of lenders” active in the shared ownership space, there are issues with their affordability assessments.
He explained: “Once you factor in the rent and service charge, many of them require clients to have no credit or borrowing already or it does not fit. There are also few options for adverse credit.”
It serves a purpose
Despite the difficulties, Taylor-Barr said that shared ownership is a “really valuable tool” for those looking to get onto the housing ladder. And while it’s not perfect, it represents a “viable option” for people to consider.
According to Dana, a limited factor for shared ownership is the fact that it relies on housing associations completing the developments.
He continued: “If there was a scheme that also covered older properties, filling the gap with capital where the resident can part rent, part buy, that may help many more customers and offer better value for money.”
