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August 29, 2019
4 minute read
This week the government announced plans that it hopes will help increase homeownership by making it more affordable.
The government consultation includes plans for a “national model of shared ownership”. This would include:
The government has also announced it will be making it easier for people buying under the Help to Buy scheme to take out a mortgage that runs for 35 years – rather than the current 25.
Let’s take a look at each in turn.
Who can argue with the idea of a national standard for all shared ownership properties?
Shared ownership is a very complicated scheme that varies depending on the housing provider you use. Anything that simplifies it for buyers is good news in our book. Our guide on shared ownership covers just some of the pros and cons which need addressing.
The government suggest that a single preferred model for shared ownership for all housing providers, will enable lenders to provide more competitive mortgage finance.
Critics of these proposals have rightly pointed out that a new national standard for shared ownership needs to address the more significant issues around the tenure of what are largely leasehold properties. These come with service charges, repair costs and ground rent over which homeowners have no control.
As part of the national standard, the government are proposing to make staircasing more flexible by taking action to enable people to buy further shares at smaller increments (for example, of 1% or more).
The devil will be in the detail, but in theory, the idea of buying up 1% chunks of your home as and when you can afford to, in the same way you might pay extra off your mortgage as and when you can afford to, sounds like a good idea.
But the plans would only work if the government addresses the transaction fees that come when you staircase – from paying for an independent valuation survey, to legal and remortgaging fees. If these fees remained it would mean regularly buying up 1% shares in your property more expensive than buying a larger chunk.
For more on the common pitfalls at play, see our guide on staircasing your shared ownership.
The government consultation “Make homeownership affordable” also refers to wanting to support the delivery of more homes for local first time buyers. This already happens with homes provided for shared ownership at a discount of at least 20% for locals, it says.
“I want local young people, whether growing up in Cornwall or Cumbria, to be able to stay in their communities and build a family where they feel at home,” wrote the Housing Secretary in the Times.
We can expect more details on these “homes for locals” soon.
When you come to sell your shared ownership home, the landlord has exclusive rights for the first 8 weeks to try to find an eligible buyer (ie someone struggling to buy outright on the open market). The government points to how this delays the sale. They propose removing this pre-emption clause as a means of speeding things up.
Alongside the consultation document, the government has also introduced a change that allows homeowners buying a property under Help to Buy to take out a 35-year mortgage. This change comes in immediately.
The move reflects change in the wider mortgage market, where the number of first-time buyers taking out a mortgage of more than 30 years has doubled in the last decade.
At present, when re-mortgaging after 2 or 5 years at the end of a fixed rate period, Help to Buy homeowners cannot in practice take out a mortgage that goes on for more than 25 years after the original property purchase date.
This policy change opens up the Help to Buy re-mortgage market for more lenders, giving customers more choice – potentially paving the way to more competitive deals.
A longer term mortgage is attractive in that it brings with it lower monthly repayments. They can offer buyers more flexibility in their monthly budget. And for some it could mean a very fundamental difference between being able to afford to buy and get out of rented.
But choosing a 35 year term means you will pay significantly more interest over the life of the mortgage than if you opted for a 25-year mortgage.
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