To buy or not to buy
HomeBuy purchasers can benefit from a tough housing and lending market says Marilyn DiCara, Director of Sales and Marketing, Moat
We are assaulted by almost daily reports of mortgage lenders closing for new lending or demanding ever larger deposits from house hunters at the moment. But in a tough housing and financial market, there are still areas of the market providing an excellent deal for both home buyers and lenders.
The HomeBuy shared ownership schemes, where buyers purchase only part of the equity of a home, represent lower risk for both buyers and lenders.
The issue of housing affordability has not gone away. While prices have stabilised, they are still extremely high by historic standards. In many parts of London and the South East, the average house price is over ten times local incomes – well out of reach for most first-time buyers. Even if prices drop by ten percent, as some commentators think possible, homes will still not be affordable for large numbers of local people.
In that context, products that make house buying cheaper and which spread the risk should prices go down look incredibly attractive, and put people in a good position for when the market picks up again.
Through HomeBuy, buyers can purchase anything from 50 per cent to 85 per cent of a property, with a housing association like Moat retaining the remaining share. The buyer pays an interest charge of 1.75 per cent a year on the equity value retained by the housing association. When the property is sold, any gain or decline in value is shared in proportion to the equity shares owned by the two parties.
On some new build properties it is possible to buy slightly lower percentages. The charge arrangements differ a little too, but, broadly, the scheme operates in a similar way.
HomeBuy is backed by government grants paid to the housing association to help subsidise the cost to the buyer, as part of the government’s policy of helping to make house buying affordable for first-time buyers and key workers. The products are aimed mainly at people who are currently social housing residents, on the local housing register for a home, and is also aimed at key workers, like nurses, police officers, teachers and a number of other occupations.
Last year, for example, Moat received grants to support over 800 households into affordable home ownership – three families every day of the year.
Lending on HomeBuy schemes is also much lower risk for mortgage lenders. The housing association does a rigorous check on the buyer’s financial position and ensures they do not overstretch themselves. The mortgage is never near 100 per cent of the true market value of the home, and there is a ‘failsafe’ in the shared ownership lease; a clause ensuring the bank or building society gets their money back in the unlikely event the buyer should default on the mortgage.
For lenders with a limited pot of money available in a nervous market, offering mortgages to HomeBuy customers is about as safe a bet as they can make. Repossession rates for HomeBuy properties are very low.
The housing market will always have cycles of rising and falling. One thing we can be sure of is that demand for homes will pick up again. We are still building far too few homes to meet housing needs in the South East.
In the meantime, people still need somewhere to live. We have become too used to seeing housing as a financial investment rather than looking at its primary function – a comfortable, affordable roof over our heads, and a secure base to build the rest of our lives from.
As we go through the tougher times, buying a property through HomeBuy will remain a great way for people to achieve their home ownership dream at an affordable price, with lower risk, and with some comfort for their mortgage lender too.
