The subject of shared ownership can be a rocky path for brokers and lenders.
Firstly, the application process can present problems as the buyer works alongside a registered social landlord or Housing Association, and secondly, there is the distinct possibility of the applicant having CCJs or arrears, putting them into the adverse credit bracket.
So where does this leave the lender? Do they really want to lend to someone who not only has a poor credit history, but is only in a position to afford half of the property? Surely not the most attractive offer they will receive.
Seeing things differently?
However there is one lender who sees this situation differently, as Preferred Mortgages has entered into what it calls ‘non-conforming shared ownership.’ Shaun I’Anson, director of sales and marketing at Preferred, claimed that the lender is not offering shared ownership deals to heavy adverse applicants, but to near-prime and extra light adverse customers, including those who are only able to purchase an initial 40 per cent of the property.
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Since 2002, Preferred has reportedly been the only non-conforming lender to offer a product which caters for shared ownership home buyers and brokers have been encouraged to become part of Preferred’s shared ownership panel in order to gain access to the growing market.
So what is the background to shared ownership? To be more politically correct, it is officially called ‘New Build HomeBuy’ and falls in line with the government’s programme on low cost home ownership and this allows for the purchase of affordable low cost housing. It is operated by registered social landlords and simply provides the opportunity for people who are either in need of housing, or are looking to buy and cannot afford to do so in one fell swoop, to buy a home outright.
A thriving market
The market is reported to be thriving, with more than £28 billion of private funding committed to social housing and at least 80,000 shared ownership properties sold in the UK. There is also the potential for registered social landlords to provide around 85,000 new homes in the coming years following a further investment of £3 billion by The Housing Corporation, which will provide to build and renovate homes for low cost home ownership. Naturally public sector tenants or those on local authority or registered social landlords’ waiting lists are given priority.
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The whole concept works around the idea of an applicant buying a share of a property and paying rent on the remaining share, which remains the property of the landlord or housing association. Generally the buyer will purchase a minimum 50 per cent share of the value and the monthly rent due to the registered social landlord will be a proportion of the total rent the property would fetch, based on the proportion of the share being rented.
Up to four people can become joint owners but all applicants must meet the criteria for eligibility both individually and jointly. Although the applicant does not buy the property outright, they do have the normal rights and responsibilities of a full owner occupier, while the landlord insures the structure of the property and the applicant pays a small management charge to cover this. If the property is a flat then the applicant is only responsible for internal repairs.
The applicant can sell the property at any time by either selling their share or by purchasing the remaining shares and selling the property on the open market. Preferred’s deal means that the lease contains 100 per cent staircasing rights, so the applicant can purchase further shares until they own it completely at a later date.
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The question has to be asked as to why lenders have not moved into Preferred’s specialist area of non-conforming shared ownership. Generally it is perceived that shared ownership is more risky than more traditional loans due to the fact that these schemes were originally available to help the financially insecure.
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As Preferred has succeeded in not only gaining ground in this area, but basically uncovering it in the first instance and raising awareness of such a niche, the question that has to be asked is this a potential area for other lenders to look at serving, or even moving into?
Iain Williamson, head of key accounts at BM Solutions, said: “In the current market, there are many innovative products being introduced to help people take their first step on the ladder. These range from parental help, getting in to the market through buy-to-let, shared ownership and combined secured and unsecured lending.”
Although not distancing BM from the possibility of moving into schemes such as shared ownership in the future, Williamson has encouraged first-time buyers to seek the advice of brokers in order to gain expert knowledge to each individual situation and to have the correct product selected.
It has to be seen whether Preferred’s take on shared ownership will catch on, how long its offer will stand and how the industry will react. However, potential buyers and their brokers should welcome its efforts to offer such an option.
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