Jeff Scott looks at the recent plans for state-backed shared-ownership schemes
First-time buyers are clearly becoming an endangered species with soaring house prices forcing many aspiring homeowners to go to increasing lengths to get on the property ladder.
While some have turned to family for financial assistance, others have clubbed together with friends to buy their first property. However, many first-time buyers are not in a position to do this and find it extremely difficult to scrape together the minimum deposit needed to get a home loan, even for a property at the lower end of the market.
Shared-ownership is becoming an increasingly viable option for many potential borrowers, especially in areas such as Greater London and the South-East where average house prices are higher.
Abbey has been involved in shared-ownership for around 15 years, providing mortgages to customers and commercial loans to housing associations.
We take a consistent approach to shared-ownership borrowers and any potential customer would be subject to the standard lending policy which includes having a minimum 5 per cent deposit and satisfying affordability criteria.
Needing more help
The scheme recently announced by Gordon Brown and John Prescott to help people buy a home with cut-price loans is potentially a very positive step and one we look forward to supporting as it’s pretty clear that first-time buyers need all the help they can get.
Our own research shows just how tough they’re finding it with one in three wanting to buy this year but only 5 per cent being confident they’ll be able to do so.
The scheme does have its limits however as it will only help around 100,000 more families buy homes over the course of the next five years which is only a small proportion of the overall number of first-time buyers.
In addition, much more needs to be done with regard to housing supply or we may see property prices being pushed up even further. Therefore, it’s important the government addresses the issue of low-cost housing to ensure the scheme is not counter-productive towards the very people at which it is aimed.
Restricted eligibility
A point to note is that eligibility for this scheme would be restricted and it is very unlikely to be completely ‘open access’. The expectation is that the eligible groups will be key workers and other first-time buyer groups as defined by Regional Housing Boards.
Brokers will want to bear this in mind and remember that the wider group of buyers cannot take advantage of the government scheme. For the often overlooked sector of young professionals and families, who have so far fallen outside of government initiatives, the problems of acquiring their first home remain the same, yet the options are still limited.
Brokers have a very important role in the success of this shared-ownership initiative. Many first-time buyers need more ‘hand-holding’ and guidance when stepping onto the housing ladder for the first time, and a change like this could mean a greater level of advice and guidance is required by the client.
Many potential borrowers may have questions around how the scheme works. For example, buyers will want to know how any increase in equity is shared, what happens if they want to increase their stake in the property, whether shared-ownership will complicate the process of selling the property or what happens if there is a drop in house prices. People in this situation will look to brokers more than ever for the right advice.
Getting the information
Intermediaries will also need to be familiar with any specialist shared-ownership products and which lenders offer deals that may be of interest to this type of borrower.
Not all lenders are flexible when it comes to these particular customers. Abbey already offers mortgages on shared-ownership purchases and makes the same range of mortgages available to all new business.
Brokers will also see an increasing demand for remortgaging and applications for further lending from customers who want to increase their share in their property over time. This process, known as ‘staircasing’, will be a good opportunity for brokers to improve existing business and increase revenues.
Shared-ownership is not the answer to all first-time buyers’ problems. It can make a modest contribution to ensuring there are sufficient first-time buyers to keep liquidity in the market but it needs to go hand-in-hand with significant increases in housing supply.
Brokers will need to vary the advice given to their first-time buyer clients because different groups of people have different housing and financial needs.
However, if the government and the industry work together to provide suitable properties to buy and suitable mortgages to be able to buy them, then this will be a positive step towards getting more first-time buyers onto the ladder.
Jeff Scott is head of intermediary marketing and specialist lending at Abbey
