Posted by: Jules Birch22/05/2009
With neat irony the National Housing Federation (NHF) is complaining about prejudice against shared ownership by the banks just as one of the biggest launches a new mortgage offering the best rates to buyers who can get someone else to put up 20% of the cost of their home.
Buyers who only have a 5% deposit can get a Lend a Hand Mortgage from Lloyds TSB with rates normally only available to someone with a 25% deposit provided they have the backing of someone willing to put up savings equal to 20% of the property value as additional security for the loan.
The deal was hailed as a positive step in freeing up the market in loans of 90% of 95%, which had dried up in the wake of the credit crunch. It’s basically the Bank of Mum and Dad, except that the parents get interest on their savings rather than giving them to their son or daughter.
But on the same day the mortgage was launched, the NHF was complaining about prejudice against another group of buyers who can only afford a share of a home. It claimed that the banks are turning away more than £1bn of mortgage business by refusing to lend to people wanting to buy through shared ownership because they mistakenly view it as sub-prime.
According to chief executive David Orr said: ‘Lenders are now reluctant to provide mortgages for shared ownership, because of a prejudiced assumption that its buyers – people on low and moderate incomes – are more likely to default on their mortgages.’
The NHF argues that the government should ensure that banks that have received public money - Northern Rock, Lloyds, RBS and Bradford & Bingley - should take on a social purpose and lend to people on low to moderate incomes who can afford shared ownership.
That point is particularly relevant to Lloyds since its HBOS subsidiary was the biggest lender on shared ownership before the credit crunch, providing up to half of mortgages around the country and all of them in some areas. The combined bank is also the biggest lender to housing associations.
According to a Treasury select committee report on the banking crisis published in May, an agreement signed between Lloyds TSB and the Treasury set conditions for government support including support for shared equity and shared ownership initiatives tentatively set at £15m-£20m. But this is a drop in the ocean compared to what the NHF says is needed - £480m for 9,000 low-cost homes that are vacant and another £1bn for the 15,000 due to be built this year.
An insight into the attitude of the banks came in an article published by the Council of Mortgage Lenders published in March. It argued that the complexity of the schemes on offer, the small size of the market and of individual loans and lack of reliable information on the risk and customer profile and volume of transactions were all putting off lenders.
Shared ownership was a particular problem because there was no clear process for dealing with borrowers who cannot keep up with payments. ‘That can lead to difficulties between the lender and the housing association in working out a solution if the borrower defaults,’ said the CML.
That suggests that it will take far more government arm-twisting to make the banks rethink their attitude. It seems that lending to buyers supported by their parents is one thing but lending to buyers supported by housing associations and the taxpayer is quite another - even for banks that are themselves supported by the taxpayer.
From Inside edge
Housing commentator Jules Birch puts the latest news in context