Share and share alike

The signs of a revolution among house builders can be seen on the streets. Banners bigger than double-decker buses, draped over newly built apartment blocks, proclaim their new-found faith in sales products for the so-called intermediate housing market. Further evidence can be found in the pages of your local freesheet, where advertisements promise: ‘We’ll fund a chunk of your new home and you can pay us back later.’

This marketing onslaught aims for people unlikely ever to qualify for social housing, yet unable to afford to buy a home outright. Traditionally these households have been aided by shared ownership schemes, which are managed almost exclusively by housing associations. Under such schemes, home buyers purchase equity shares in a home then pay rent on the remaining portion. However, most of the major house builders have now launched their own products aimed at intermediate buyers, and many consider these shared equity offerings, as they are known, to be more popular among high street lenders and home buyers than the 30-year-old shared ownership model.

Though developers are piling into the intermediate market and trumpeting the quality of their product, housing associations are questioning their motives for targeting it. In particular, they suggest it is a short-term interest which will evaporate once outright housing sales recover. Twenty associations, with National Housing Federation backing, have formed a campaign to champion the traditional shared ownership model.

So, who will win the battle for the hearts and minds of the intermediate household?

The rise of shared equity

The numbers of homes sold through shared equity schemes by house builders have grown in significance since problems in the financial markets crippled the mortgage market in 2007. High street banks are typically demanding deposits of 25 per cent of a property’s value before agreeing a mortgage on an outright sale, particularly for flats.

While many developers closely guard their commercially sensitive sales figures, a spokesperson for Countryside Properties says that 85 per cent of the homes in its flatted developments have been sold as shared equity products during the last years. Around 30 per cent of the homes sold by developer Galliford Try over the past 18 months also involved some form of shared ownership, according to the firm’s managing director of affordable housing and regeneration Stephen Teagle.

Some house builders hint that their intermediate interests may only last as long as households struggle to borrow. Crest Nicholson, for example, says its EasyBuy equity share product proved popular during the downturn. It was developed initially in 2005 but re-launched in 2007 when the credit crunch started to bite. ‘We will continue to offer EasyBuy where assistance is needed across selected sites, certainly in the short to medium-term,’ says Helen Saunders, group marketing executive at Crest Nicholson.

But others suggest they are in it for longer. Mr Teagle argues that house builders have ‘come of age’ in their appreciation of the intermediate market: ‘Where once this was a minor product associated with housing associations, sales teams are now far more conversant with the products.’
Galliford Try has developed its own shared ownership scheme as well as a shared equity product, which many of the major house builders in the UK offer in different guises. Such products typically allow people to buy between 75 to 95 per cent of a home while the firm retains the remaining equity. Unlike shared ownership, the buyer legally owns the whole property, making the product popular with customers and the lenders who finance their purchases.

Major house builders Persimmon, Barratt, Bellway, Bovis and Crest Nicholson also launched intermediate housing products before the credit crunch seized up the mortgage market - and all six see a long-term future for the products despite mortgage lending remaining tight.

Of the 9,000 homes Persimmon built in 2009 a ‘significant’ number were sold under shared equity schemes, according to Ashley Lane, director of the group’s social and affordable housing division. Barratt made 5,000 sales between July and December 2009, around 12 per cent of which were made through its Head Start shared equity scheme. ‘This isn’t a short-term solution,’ a spokesperson says. ‘It has been running for five years and there are no plans to discontinue its use.’

Bellway meanwhile set up the Bellway Housing Trust in 2005 to lead its expansion into intermediate housing. Uniquely, it not only builds but manages its homes, with 232 currently under management. The trust operates across 16 local authorities and has just launched a push to expand in south east and south west England.

Bovis describes its Jumpstart equity share scheme as very successful. ‘It is a popular and useful sales tool and at this time we have no plans to withdraw it,’ a spokesperson says.

Lender popularity

Whatever is driving their shared equity push, developers claim their products trump traditional shared ownership. ‘We have found great resonance in the general public with shared equity,’ says Persimmon’s Mr Lane. ‘Shared ownership is very much seen as a rental-type product; from day one, shared equity buyers own 100 per cent of their home, giving them greater flexibility.’

Mr Lane, who also chairs arm’s-length management organisation Solihull Community Housing, adds that housing associations’ interest in shared ownership appears to have dwindled. ‘Shared ownership appetite has fallen over the past two years because of the financial exposures and risks.’
Another point in favour of developers’ shared equity schemes, says Colin Blakey, Bellway’s director of affordable housing, is that lenders favour equity share schemes to traditional shared ownership. Bellway has its own equity share products as well as taking part in the last Labour government’s HomeBuy Direct programme. This is an equity share scheme in which the Homes and Communities Agency splits the retained equity stake with the developer.

The £400 million programme was launched in September 2008 (see box, A quick guide) to help house builders and housing associations sell unsold stock. ‘Mortgage providers tend to have more of an affinity with HomeBuy Direct than with shared ownership,’ Mr Blakey says.

Bellway offers shared equity and shared ownership products through its trust, which Mr Blakey manages. The trust allows the group to manage affordable housing on its developments instead of passing the role on to a housing association.

Bellway has also just begun looking to buy more land for housing in the south east and south west of England. ‘Now is the right time to do more shared ownership and shared equity,’ Mr Blakey adds.

The developers’ equity share juggernaut has not gone unnoticed by housing associations, which manage the lions’ share of shared ownership products.

Long-term solution?

The report published in April by the 20 NHF-backed associations banging the drum for shared ownership, describes the effect of the credit crunch on the housing market as game-changing. ‘Lenders and private house builders have both found reason to promote the claims of shared equity above those of shared ownership in dire housing and financial credit markets,’ it states. But house builders, according to the report, will ditch their equity share products as soon as the market becomes strong enough. ‘The social objectives for the intermediate market are not a key consideration for private house builders. Their primary concern is maximising profit for shareholders and directors,’ it states.

Today the campaigners appear slightly less bullish. Steve Moseley, head of research and development at campaign group member London & Quadrant, says developers providing affordable homes are welcome. ‘If they are in it for the long term that is also good news. There is a place for both products as they appeal to different market segments. Average incomes and mortgages are lower for shared ownership [households].’

Marilyn DiCara, the campaign’s chair and sales director at housing association Moat, agrees that shared ownership and shared equity work together well. ‘There is room for both in the market. From a customers’ perspective there is a different affordability for the products.’

However, she does question whether shared equity products will continue to be offered if the housing market returns to its previous buoyancy. The same question is posed in the campaign’s report, which asks: ‘Is it really in a house builder’s interest to tie up capital in relatively small equity stakes in sizeable numbers of properties for perhaps many years?’

The answer from most of the house builders seems to be a ‘yes’. Countryside Properties is the only developer to sound an outright cautious tone about the future of equity share products. ‘We can’t afford to finance shared equity on new schemes,’ a spokesperson says. ‘Shared equity takes up a big chunk of finance. We hope that it will be a short-term issue.’

But Mr Lane, of Persimmon, says the report is ‘ill-informed’ about house builders’ attitudes to the intermediate housing market. ‘Shared equity is not going to deliver the same level of profit [as outright sales], but you have to consider the market place and affordability. We are very much customer led. There is a demand for all three: market rental, shared equity and outright sale. If we are to be able to work with local authorities to provide sustainable communities, we have to be able to work across all sections of society.’

Mr Teagle says the intermediate housing market is now fundamental to future housing supply. ‘Housebuilders will increasingly mainstream these products. The genie is out of the bottle.’

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