By Ashley Pearson, Head of Intermediaries at The Loughborough Building Society
Plans to tackle England’s housing shortage have recently been outlined by the new Labour government, with increased focus and targets being given to areas where housing is least affordable.
The aim is for 370,000 new homes to be built in England every year, with a promise made by Housing and Planning Minister Matthew Pennycook to create 1.5 million new homes within the next five years.
With local authorities being told to give developers permission to build, the announcement is a bold move by the government, which it hopes will go some way to addressing the housing crisis across the UK.
According to government figures, there are 1.3 million households on social housing waiting lists and 160,000 children in temporary accommodation; not to mention the millions of people who are unable to afford to buy their first home.
While time will tell whether the government will succeed in reaching its lofty housebuilding target, the announcement does however, shine a light on the ongoing need for workable solutions that help borrowers achieve their homeownership goals.
Shared ownership mortgages have been offering a homebuying solution to qualifying borrowers since the product was first launched in the 1980s. Since then, demand for the product has remained high as house prices have continued to rise over the years and the need for larger deposits has also grown.
One challenge of the scheme is that shared ownership mortgages are limited to qualifying properties, which makes the government’s focus on building more affordable homes a welcome development for the sector. On the positive side, saving for a deposit is often more achievable, as these are typically between 5% and 10% of the share purchased, resulting in a lower initial outlay for the borrower.
Over time, and as budgets allow, borrowers can also increase their share of the property by “staircasing” to buy a larger stake. This helps them build more equity in the property and lays the foundations for greater financial wealth.
Traditionally, staircasing has been capped at a maximum share of 75%, but there are alternatives. Here, at The Loughborough, we’ve recently enhanced our shared ownership mortgage solution to offer up to 95% of the share borrowers can staircase to when they remortgage.
This provides those borrowers taking out a shared ownership mortgage with the opportunity to own a larger share of their home, encourages greater longevity in the scheme and helps to set them on the path to full homeownership further down the line.
Shared ownership mortgages can be taken out on a variety of properties, including new build houses, new build flats and second-hand flats, with LTVs ranging from 95%, 90% and 80% respectively. As previously stated, staircasing is also now acceptable at up to 95% of the share, and a minimum share of 25% is required in all cases.
Some lenders in this space adopt a more personalised underwriting approach, enabling them to offer flexible product features tailored to each client’s unique needs. This can be particularly beneficial for self-employed applicants with just one year of employment history and financial records, rather than the usual two.
Borrowers with a history of adverse credit, such as those with CCJs or missed payments, can also be considered. We even accept benefit income provided it does not exceed 50% of the applicant’s total income. Mortgage terms are also available up to a maximum of 40 years to demonstrate how accommodating many specialist offerings can be in this product space.
As we approach 2025, hopes for greater economic stability and an increase in affordable homes offer new possibilities for borrowers aiming to step onto the property ladder. This also presents intermediaries with a chance to collaborate with lenders providing shared ownership solutions, and in supporting a wider array of clients who are seeking more accessible routes to homeownership.