Another other big change has been the introduction of the mortgagee protection clause, which protects the lender’s interests in the event of default. If the sale price of the property does not cover the value of the outstanding mortgage and the housing association’s share, the lender is repaid first, with the association receiving anything that may be left over.
Capital weighting
One sticking point remains that, for capital requirement purposes, the Prudential Regulation Authority requires lenders to calculate the LTV ratio on the buyer’s share of the property only. Shared ownership lending is effectively non-prime, 100 per cent lending, giving it a higher capital weighting and making it more expensive for, and less attractive to, lenders.
The CML survey estimates the current stock of shared ownership properties in the UK to be around 200,000, with roughly 40,000 units built in the four years to 2015. It suggests that the government’s goal to build more than three times as many by 2020 may be unrealistic. Mortgages for shared ownership properties consist of only around 1.3 per cent of total mortgage lending in the UK – very much a niche part of the market (see Table 1 for sales in England).
Buyers have the option to ‘staircase’ – gradually increase their share in the property until they pay mortgage on the full value. However, fewer than 5 per cent of shared owners do this each year.
Nevertheless, there is room for growth and the sector has the potential to help reverse the trend in the decline of homeownership.
Inevitably it boils down to the need not just to build more, but to build more affordable homes. But given some of the rule changes, shared ownership could represent a shot in the arm for homeownership aspirations and FTBs.
