We are all aware that the number of First Time Buyers in the market has dropped dramatically over the last few years, due in the main to the rapid increase in house prices. This has impacted greatly on the First Time Buyer who has found it extremely difficult to be able to afford to get on the first rung of the housing ladder. Recent figures suggest that the average age of the First Time Buyer is now 34 and it takes approx. 4.5 years to save the required deposit. It is also felt that this situation can only worsen as the impact of student debt takes it toll on future generations of First Time buyers.

Lenders are constantly trying to find ways of helping this sector of the market and a number of us now pay more regard to the affordability of the client when calculating how much they can borrow, as well as trying to develop new schemes and products to make it easier for them to become owner occupiers.

One scheme that has been available since the early 1980’s but is now proving more popular especially with First Time Buyers is Shared Ownership.

This scheme was originally developed by Local Authorities and Housing Associations and was designed and aimed at lower income earners to assist them in buying their first home. Put simply, Shared Ownership allows an individual who would otherwise be unable to afford to buy a property, the opportunity to purchase a share of a property from a ‘registered social landlord’ and pay rent on the remaining proportion. Typically the purchaser would buy an initial share of say 25%, 50% or 75% of the property and would then have the opportunity to ‘staircase’ or increase this proportion in future years as their circumstances change.

There are a number of schemes available, a number of which focus on key workers who would, under normal circumstances, be unable to purchase properties near their place of employment. Although this has been a major issue in greater London and the South East for some time, the inevitable ripple effect on house price increases means that potential borrowers are suffering across the UK.

The affordability issues and the general lack of affordable housing means that we are now finding that the schemes are being used by an increasing number of people as they can negate the need for an initial deposit, especially where some lenders like Leeds Building Society will lend up to 100% of the borrowers share. It also means that the client’s initial mortgage requirements are lower than they would be if they were to purchase a house outright on the open market. Whilst the purchase process can be more time consuming and the choice of property restrictive, Shared Ownership is rapidly becoming a more mainstream way to buy a house.

It is also quite clear from recent developments that the whole subject of affordable housing and the plight of the first time buyer is high on the agenda for both the Government and the mortgage industry. We need to ensure that we all remain focused on these areas in the future and try to be innovative with both product design and criteria.

Leeds Building Society has been involved in the shared ownership market for a number of years and recent experience has shown that, as First Time Buyers are becoming older, more of them are unable to take advantage of the shared ownership schemes due to minor hiccups in their credit history. For those clients who have previously incurred rent arrears or minor CCJ’s and defaults, there are not many options available to help them purchase a property.

Recent research into the sub-prime sector also revealed that a proportion of individuals had their credit ratings detrimentally affected as a result of divorce or separation. We are all aware of the statistics regarding the continuing increased incidence of divorce in the UK and this together with the spiraling levels of personal debt, means that more and more people could experience problems over the coming years.

In view of this we at Leeds Building Society felt that there was a need to help these potential customers get their first step on the housing ladder and designed a product specifically to cater for these clients.

As a lender, we are of course extremely mindful of the need to ensure that our customers are not over-stretched and can afford the mortgage payments they commit to and we believe our robust underwriting and income assessment processes ensure that we remain a responsible lender. Some may think that this is ‘a bridge too far’, but we are comfortable that, taking into account the equity position based on the open market valuation, together with the underwriting procedures we adopt, will mitigate any perceived risk associated with lending in this area and will help a number of people to become homeowners and get their financial situation back on track. It is in our view the next logical step in a market that continues to develop and I feel certain that we will see other products emerge in the market over the coming months.

J Kirk
Corporate Relationship Manager

March 2007