Shared ownership schemes where by existing home owners sell some of the equity in their property and pay rent on it should be developed to curb repossessions, says the Building Societies Association. In a report published last week, A Joined-up Approach To Helping Mortgage Borrowers, the BSA puts forward such schemes as one of four solutions which could work together to form a long-term safety net against repossessions.
The other three recommendations include lender forbearance, an expansion of government initiatives such as its Support for Mortgage Interest scheme and borrowers taking out some form of mortgage protection.
The report says: “Shared ownership schemes could play a part in keeping home owners in their homes if we could devise a way of allowing them to vary the share of the property which they own.
“This might mean that someone struggling to meet mortgage payments would sell off some of the equity in their property to a third party and pay rent on this part while continuing to live in the property.”
It says that if the borrower’s circumstances improved, they could buy back the share in the property, but if their situation did not improve they could sell their remaining share and become a renter.
However, the BSA acknowledges that finding organisations which would be willing to buy the share is a barrier to the scheme and it is calling on mortgage lenders and the government to carry out a feasibility study to look at who could buy the shares and how it would work.
The trade body also recognises the similarity between its proposals and sale-and-rent-back, but says that the rent-back sector is too small
and regulation of it too recent for it to play a major role in schemes for those at risk of repossession.
Ray Hugill, independent chairman of the Association of Arrears Mediators, says schemes like the BSA is suggesting could be useful if used in conjunction with other initiatives, but market con ditions are not favourable for the idea.
He adds: “With the base rate at an all-time low and rents rising, switching from mortgage to rental payments will not nece ssa rily reduce borrowers’ outgoings.”