More Mortgage Lender and Government Support Vital to Address the Housing Crisis
If government is to reach its 1.5m new home target, it must support a wide variety of tenures that meet different needs.
Here, Prima Group Chief Executive John Ghader explains why mortgage lender and government support for shared ownership will not only get more people on the property ladder but, if managed correctly, return a host of wider benefits for society.
By John Ghader
Poet William Cowper’s fabled proverb ‘variety is the spice of life that gives it all its flavour’ is as apt for everyone in the sector trying to provide homes people deserve as it is for everyday living.
If government is to reach its 1.5m new home target, then it must offer a diverse range of tenures that are suitable and appeal to as many potential renters and homeowners as possible.
Since its introduction 45 years ago, shared ownership has and continues to be one of the most hotly debated tenures, and while it is not right for everyone, neither are social rent, affordable rent or outright sales products.
It has a crucial role to play, so we need to make sure it is flexible and remains an option as lender support appears to dwindle.
We were encouraged by the Financial Conduct Authority (FCA) to write to government to review the regulation that supports homeownership and remind lenders of flexibility in its rules that can help more people access mortgages.
In June, the FCA opens a public discussion on the future of the mortgage market, looking at risk appetite, responsible risk taking, alternative affordability testing and product innovation.
It follows Rachel Reeves’ call for regulators to pursue a pro-growth agenda instead of ‘excessively focusing on risk’.
If considered and managed carefully, higher homeownership levels can co-exist with financial stability; we don’t need a return to pre-credit crunch loan-to-value levels, nor choke supply.
At Prima, we have a perfect example of shared ownership product innovation that brings an array of social and economic benefits for people, wider communities and the Treasury.
St William’s, Wigan.
We are handing over keys at St William’s in Wigan, which is a 27-home shared ownership scheme with a twist.
Our sweat equity model saw residents, called home-partners, work 500 hours to help the contractor build their homes in return for a £10,000 mortgage reduction.
Work included general labour, painting, decorating, landscaping, administration, marketing and IT.
To ensure home-partners were well rewarded, we paid a sweat equity rate of £20 per hour (£10,000 for 500 hours) which is almost double the National Living Wage.
It has addressed affordable housing challenges for low-income families by helping local people who would otherwise not be able to afford deposits.
Everyone moving in previously lived within four miles of the site, and 70% resided within one mile.
All home partners work in Wigan, with 90% employed in the village where St William’s is situated.
To involve the local community, volunteering and training opportunities were given to college students, while other stakeholders, like the local primary school benefited too.
Furthermore, it created an immediate neighbourhood as home-partners fostered relationships working side-by-side, avoiding it from being soulless like some new schemes can be.
Sweat equity benefits are clearly plentiful then, and St William’s won a UK Housing Award and four other titles, so it was disappointing to find many lenders losing their appetite to provide mortgages.
Some were reluctant to recognise the sweat equity element, while others did not like applicants receiving Universal Credit or working part-time; we need them to be more flexible.
As a result, this scheme was only possible by the £4 million capital investment we made, which in turn was supported by £1.6 million grant from Homes England’s Affordable Homes Programme and Brownfield Land funding through Greater Manchester Combined Authority.
Even with these significant contributions and a fully costed business plan, it was a challenge.
Lenders need to review their stress testing criteria and view shared ownership as a core housing product that taps into a significant segment of the market, i.e. a halfway house for those who can’t access social housing nor afford outright homeownership with a full mortgage.
Government should look at the wider impact this type of product innovation has. Higher grant rates could be linked to social and economic returns and factored into the overall new home target.
The sector has already made a compelling case to government for greater funding certainty via longer affordable homes programmes and an extended rent settlement.
From a sweat equity shared ownership perspective, greater lead-in times would allow us to work more closely with appointed contractors and home-partners to formalise results.
Sweat equity could contribute to mortgage applications and provide accredited skills and training, leading to employment with construction trades being a natural fit.
It could also extend to the groups of people as a society we should be giving more support to, such as those with disabilities or support needs, ex-service personnel, young people leaving care and key workers who aspire to get on the housing ladder.
With greater government support and lender flexibility, we could look at alternatives to the Bank of Mum and Dad, too.
Instead of putting their hands in their pocket to help with a deposit – something not every parent can afford – they could get their hands on a shovel and contribute to their offspring’s on-site sweat equity hours.
These are just some examples of the type of product innovation the FCA is calling on lenders to recognise.
Shaping the debate with government and the financial authority is something the sector should be actively involved in so we can ultimately build and house more people.
This is our and the government’s collective task.