MortgagesAug 13 2021

Lenders lag on implementing govt's shared ownership changes

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Lenders lag on implementing govt's shared ownership changes
Photo by Marius Mann from Pexels
ByRuby Hinchliffe

The majority of UK lenders are yet to change their shared ownership criteria despite the government reducing the minimum initial share from 25 to 10 per cent in April.

Some advisers have since criticised lenders for not using the new criteria, which is designed to help  buyers with a lower deposit get on the mortgage ladder. 

“Shared ownership is an area of lending that we see many enquiries for,” Carl Shave, director at Just Mortgage Brokers, told FTAdviser.

He said this was particularly the case from those with some form of adverse credit.

Shave added: “But we still need lenders to embrace the recent shared ownership changes if the scheme is to move forward in utilising the new criteria.”

Lenders’ are currently competing for high loan-to-value mortgage customers, cutting rates to record lows for those borrowers able to fork out 40 per cent deposits.

Some industry experts anticipate lower deposit holders will eventually feel the benefits of industry wide rate cuts, but none have arrived on the market yet.

At present, Dudley Building Society is one of two UK lenders to offer a purchase minimum of 10 per cent for shared ownership mortgages. The other is Reliance Bank, according to the latest Moneyfacts data.

Dudley BS said in a statement this week: “Shared ownership needs to be given fresh consideration by the intermediary community as frustrated first time buyers continue to see house prices outpace income growth.”

As well as the new 10 per cent minimum ownership rule, the government has also introduced the ability to buy more equity in increments of 5 per cent, as opposed to the previous 10 per cent threshold. For those paying in cash, buyers can buy as little as 1 per cent more equity each year.

More than four months have passed since these changes were announced by the government, but Shave said “sadly the only lender we are aware of to date [which has made these changes] is indeed Dudley BS”.

Shave reckons a reason for this could be how the 10 per cent rule impacts lenders’ minimum loan sizes.

“If a lender’s minimum loan size is £50,000, the minimum purchase price would have to be set at £500,000 or more, depending on the personal deposit required.”

Not all lenders set minimum loan sizes, with specialist lenders such as Dudley BS avoiding a minimum due to the fact they cater specifically to more vulnerable customers. 

There are also flaws which remain in the government’s shared ownership scheme according to Shave.

“The difficulty remains that whilst it is seen as a scheme to assist homeownership, when all costs are taken into consideration, and predominantly the rent payable, the scheme still excludes many on affordability.”