Letters: Shared ownership has a lot to offer

Star letter: Shared ownership has a lot to offer

I read recently that the Intermediary Mortgage Lenders Association has published its criteria for housing and mortgage policy in the build-up to the general election. 

One of its five key recommendations for the future government is to implement a state or privately backed mortgage indemnity guarantee to succeed Help to Buy and support high-LTV borrowing in the long term.

In 2013, I wrote an article about doing this very thing. I based it around the shared ownership model, which is there to attract first-time buyers who earn insufficient income to purchase a property on the open market.

If you countered the negative attitudes towards lending with a one-off MIG fee (possibly payable by the housing association rather than by the first-time buyer), this would reassure lenders that this type of lending is low risk. 

If, as a result, you could open up the lending market to a greater number of lenders that would invest in this product, you would reduce the current lenders’ exposure to risk on any one development while offering greater competition, leading to mutually beneficial rates.

Lending on shared ownership is in fact very low risk, with property prices stable/increasing and unlikely to drop by much. Additionally, a shared ownership lender has the benefit of the mortgagee protection clause. The operation of this clause means that, if the lender has to repossess the property from the borrower, it is automatically allowed to sell the 100 per cent market value of the property and already has the protection of being able to use the equity that the housing association has in the property to reimburse it for any losses it suffers as a result of the repossession.

So whereas with normal lending products the lender takes the hit on any shortfall in capital received on sale of a repossessed unit – unless it is insured – when a shared ownership property is sold, the 50/60 per cent share that the registered provider has in that shared ownership unit is used to repay the mortgage lender. It can deduct 18 months’ arrears of interest, all of its legal fees, any specified rent and all costs associated with the sale of the property, such as agents and asset management fees.

So I ask if, even without any form of MIG protection, lenders will reconsider the risk of lending on shared ownership? After all, many people buying into the shared ownership product are professionals, such as teachers and health workers.

Shared ownership has been with us for a long time and is not merely a ‘sticking plaster’ for the current housing shortage. Everything should be done to support it.

Louise Drew, partner at Shakespeares Solicitors

 

Give us the right tools for BTL surge

With pension reforms coming this month and most people being given access to cash that was previously untouchable, the rumour is growing louder that property could be the investment of choice.

So what are the lenders doing to try and cash in on this increased demand for buy-to-let? Nothing!

What should they do? First, take a look at their stress tests of 125 per cent at 6 per cent when interest rates are less than 3 per cent and not likely to rise for a year or two.

Next, maximum ages need to be scrapped or extended. Buy-to-let is a semi-commercial, non-regulated transaction and standard rules need not apply. 

The need for a mortgage should be scrapped. If someone owns a property, they should be allowed to do a buy-to-let. Simple.

First-time landlords should be encouraged; it is hard to get a loan for them. Incentives akin to those for first-time residential buyers should be used by the lenders.

Finally, remove or reduce the need for minimum incomes. A lot of these clients will be asset-rich and income-poor. Two pensioners earning £20,000 each with no outgoings are a far better risk than someone earning £50,000 with a mortgage, car loan, credit card and kids.

We mortgage brokers could do with an influx of new clients, so please make sure we have the right tools for the job when the flood gates open. 

Robert Winfield, Chartwell Funding