CML wants simplified Homebuy

In a report released yesterday the Council of Mortgage Lenders (CML) urged the government to simplify the various Homebuy affordable housing schemes. For some while, the term Homebuy has been used to refer to almost all affordable housing initiatives, including most shared ownership and shared equity schemes. This has led a significant amount of confusion not only among those wishing to use the schemes, but those charged with advising on them. With terms such as New Build Homebuy, MyChoice Homebuy, Open Market Homebuy and now Homebuy Direct, there has to be some scope for simplification.

The objectives of the government are laudable, aiming to make home ownership a reality for as many as possible. The social and economic benefits which flow from widespread home ownership were first identified by the Thatcher government and embodied in the Housing Act of 1980, and the current administration is keen to make sure as many as possible have a monetary stake in their home. Low cost home ownership schemes have evolved as part of government objectives to provide choice and opportunity and encourage self reliance and independence especially for those on lower incomes.

According to the CML, such schemes need to be both easily understood by those wishing to access them and commercially viable for the lenders who provide the finance. The CML point out that the vast numbers of different schemes, some of them only offered in very restricted geographical locations, make the cost of implementing systems and training staff prohibitive. In addition, many schemes have undesirable features which detract from the security being offered, especially in the current climate. An example of this would be a restriction on who the property could be sold to which may cause problems in marketing a property which has been repossessed.

Lenders have indicated that as far as low cost home ownership schemes are concerned, they would prefer shared equity schemes such as Homebuy Direct. The scheme allows purchasers to own the whole of the property but only pay for part of it, say 70%. The rest of the purchase price is covered by an equity loan funded partly by the developer and partly by the Homes and Communities Agency which is repayment and interest free for the first five years. However, predicted take up in the scheme remains low when compared with the number of transactions as a whole in the market, and therefore the number of lenders currently prepared to consider applications is small. The advantage of this scheme to lenders, when compared to shared ownership or part rent, part buy schemes such as New Build Homebuy, is that it is the equity share which suffers any loss due to falling house prices.

The CML go on to explain that whilst they are committed to the principles of low cost home ownership, especially those which are based on the shared equity model, the lack of certain market data, current credit conditions and the problems and complexities of the various scheme means that enthusiasm is subdued. The CML also point out that whilst many lenders were previously prepared to offer loans of 100% of share, especially for shared equity schemes, this is no longer the case. Many lenders feel that borrowers are more committed when they are required to have a personal stake in the property. Tim Lee, Managing Director of The Mortgage Warehouse (GB) Ltd said:

"Whilst I can understand lenders confusion with the plethora of schemes available, I think the report is somewhat patronising to those who might benefit, and seeks to identify problems rather than solutions.

"Low cost home ownership schemes are aimed specifically at those whose earnings are low, and so the requirement to provide a substantial deposit is nothing more than a mechanism to exclude those very people the schemes are designed to benefit.

"This report is a further indication that the objectives of mortgage lenders and the government are not the same, and the government will have to think of some way to persuade mortgage lenders to make loans available to those who are the lifeblood of a successful housing market."

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