OWNERSHIP
THE DREAM OF HOME
Different tenures The challenges for those who support the general concept of low-cost home- ownership have intensified in recent years. This is partly because the capacity to sustain provision in each of the main housing tenures has come under much greater pressure. For the first time in many decades, home-ownership has been in decline, largely as a result of a combination of the mortgage funding shortage, continuing affordability problems for first-time buyers and the economic downturn. According to the most recently published English Housing Survey, the proportion of owner-occupiers fell from 70.9 per cent in 2003 to 67.9 per cent in 2008-9. The likelihood of any recovery in home-
ownership in the medium term looks more remote since the general election. Housing benefit cuts and the public sector pay freeze announced in the recent emergency Budget, along with the prospect of further
Buying even the tiniest property is, increasingly, just a dream for many
The former enables a borrower to buy a home with the help of an equity loan, either from a housing association, the Homes and Communities Agency or a developer, and to take out a conventional mortgage for his own share of the property. Under shared ownership, the occupier
also buys a share of the property with a mortgage but rents the rest of it from the supplier, usually a housing association. Traditionally, lenders have tended to
favour shared equity, which more closely resembles a traditional mortgage offering. Shared ownership is more difficult to
The likelihood of any real
recovery in home ownership in the medium term looks more remote since the General Election.’ The funding shortage – which has
tightened its grip on the capacity of both lenders and the government – has also affected the social rented sector, where growth in demand has continued to outstrip supply. In 2008/9, there were just over 250,000 lets generated from a waiting list of 1.7 million. Housing associations have found that
spending cuts and an increase in pension costs for many people in work, will not improve the confidence of consumers aspiring to owner-occupation or their ability to take on and sustain a major financial commitment. For a decade from the late 1990s
onwards, supply in the private rented sector was boosted by the abundant availability and take-up of buy-to-let funding. But, since 2007, there has been a decline in activity, driven by the mortgage funding shortage, pressures on rental yields and diminished prospects for capital growth for property investors in the short to medium term.
there is still strong demand from consumers for the more restricted low-cost home-ownership provision they are able to offer. A survey of five HomeBuy agencies showed that they were dealing with more than 80,000 applications at the beginning of 2010, compared with an annual building programme of between 10,000 and 12,000 new homes. Anecdotally, housing associations,
particularly those based in London, are reporting a growth in demand.
sHAreD eQuitY or ownersHiP? In the aftermath of the right to buy, most low-cost home-ownership initiatives have essentially been based on either a shared equity or a shared ownership model.
administer for lenders and attracts a higher capital weighting from the Financial Services Authority (FSA). This is because the FSA requires lenders to calculate the loan-to-value ratio on the buyer’s share of the property only, even though the lender is able to claim against the whole of the property – including the share retained by the landlord – if the borrower defaults on the mortgage.
How mucH is ‘low-cost’? In the immediate aftermath of the financial crisis, the last Labour Government stepped up its commitment to shared equity, partly in an effort to boost activity in the flagging housing market. The new Coalition Government,
however, is signaling a clearer preference for shared ownership, perhaps in response to current fiscal pressures. A discussion paper, ‘The role of shared
ownership in the future housing market’, which was published by Moat Homes in April 2010 estimated that funding a shared ownership purchase cost the public purse an average of just under £27,000, while the cost of funding shared equity averaged just over £44,000. Another advantage of shared ownership
is that it continues to allow housing associations to raise finance through a charge on a property. The reality is, however, that fiscal
constraints are likely to curtail severely government funding for all housing schemes for the foreseeable future. In its place, the coalition hopes that housing supply will increase through a combination of more liberal planning laws and greater freedom for communities to devise their own solutions to local housing problems. It is much too early to say how effective
this new permissive regime will be in delivering housing volume. But there are considerable hurdles to surmount, given the scale of funding constraints.
PROPERTYdrum SEPTEMBER 2010 39
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