Published 23 Nov 2016
Improving Choice of Shared Ownership Lenders
We’ve asked one of our panel Mortgage Advisers, Censeo, to discuss whether Shared Ownership buyers have a good choice of Mortgage Lenders:
Mortgage lending has always had an impact on the ability of people to buy property and over the last 9 years has come under much scrutiny.
Mortgage lending pre-credit crunch
Pre-credit crunch in 2007, deregulation of financial markets and consequent product innovation provided borrowers with greater choice. During the credit boom, many could get onto the housing ladder via 100% - 125% mortgages and borrow 6-7 times their income. Most have heard stories of mortgages being granted via Self Certification which essentially meant the Banks did not ask for verification of income so people could buy properties their income did not support, just by stating they earned more than they did.
Financial market conditions started to change in 2007 and worsened in 2008, culminating in the worldwide collapse of the financial markets after Lehman Brothers. This led to the closure of lenders, bail outs, mergers and less mortgage providers.
Some will remember the likes of Northern Rock, Cheltenham & Gloucester and Alliance & Leicester on the High Street who no longer have a presence on the High Street and are currently owned by another bank.
The aftermath of the credit crunch brought several changes in the mortgage market such as the removal of self-certification mortgages, restricted Interest only lending and the mortgage market review.
A history of support for Shared Ownership
Shared Ownership mortgage lending has always been supported by a group of lenders who have approved the model lease granted by Housing Associations. The model lease included a mortgagee protection clause which protects the lender in the event of default or repossession.
The model lease is different to a standard lease therefore requires the understanding of lenders.
Historically many myths have been attached to Shared Ownership which influenced the decision of lenders not to support Shared Ownership. Risk is central to a lender’s decision making process and sometimes Shared Ownership is incorrectly perceived as a higher risk in terms of defaults which isn’t the case.
The quality of applicants and properties is also something that has been wrongly assumed to be lower than in the open market over the years.
These myths and perceptions have changed or disappeared over the last 5-7 years as property prices have increased and the awareness of Shared Ownership has increased. Information and knowledge is now much better and there is an acceptance that Shared Ownership has become the 3rd tenure alongside 100% ownership and renting.
Shared Ownership lenders reach an all-time high in 2016
Currently there are 12 National lenders within the Shared Ownership market, an increase of 5 from 2007. Considering the economic climate, this proves the positive impact that Shared Ownership is having on lenders. Over the last 2 years many more Banks and Building Societies have expressed an interest in lending on Shared Ownership.
On the High Street, 6 Banks and Building Societies can be found in the UK nationally that will provide Shared Ownership mortgages. It is prudent to seek the advice of a specialist Shared Ownership Mortgage Advisor such as Censeo, as they will have the option to approach Banks and Building Societies that will not appear on the High Street and will often have access to exclusive mortgage products that aren’t available elsewhere.
A specialist advisor will have access to around 12 lenders and sometimes more. Depending on the region where the property is located, borrowers are presented with as much choice as the open market. Many lenders will offer the same products to borrowers as they offer to open market buyers, so product choice is not restricted.
This is more prominent when looking for a higher loan to value mortgage as advisors can access up to 9 lenders offering between 90-95% loan to value on Shared ownership. The mortgage products available for Shared Ownership are highly comparable with the best High Street 95% rates for open market purchasers. Open market being 3.44% compared to 3.55% on Shared Ownership*.
All lenders have differing criteria, deposit requirements and income guidelines which is the main factor in someone being able to obtain a mortgage.
In general terms, if someone can obtain a mortgage on the open market they will be able to obtain a Shared Ownership mortgage. The increase in Shared Ownership lenders has also been beneficial to the self-employed, contractors and those on visas who have historically been the people most restricted.
The choice lenders available through specialist mortgage advisors such as Censeo has never been better, ensuring that buyers get the best mortgage suited to their needs.
*Interest rates correct as at November 2016