Over the last few years, first time buyers, key workers and those on low incomes have been pushed out of the UK property market by rising property prices and therefore find it particularly difficult to get onto the property ladder. Indeed, according to the Council of Mortgage Lenders, in Q2 2000, first time buyers accounted for 44% of total loans for house purchase, yet by Q2 2006 this figure was down to 36% (in actual fact having risen somewhat from its low in Q2 2004).
Yet, throughout the years, the UK government has initiated a large number of schemes to increase homeownership, particularly among those with low incomes. Indeed, shared ownership has helped a number of first time buyers and key workers since its establishment during the 1980s. In contrast however, the new Open Market HomeBuy scheme could end up helping a much greater number.
While shared ownership schemes have seen demand, the market remains small
While the shared ownership mortgage market has grown over the last years, it remains small. According to Datamonitor estimates, shared ownership mortgages remain a very small part of the UK mortgage market; at only 0.1% of all residential mortgage advances in 2005, during which new business amounted to GBP517.4 million. While the market has grown at a compounded average rate of 33.4% per year since 2001, much of this growth can be attributed to its small size.
In fact, there is significant demand for shared ownership schemes. However, the number of properties available under shared ownership remains limited, in addition to the types of people that can apply for the scheme. Moreover, lenders have not actively pursued growth of the market, as these mortgages remain administratively cumbersome and costly to provide, and do not give lenders a competitive profit margin in comparison to other niche mortgages.
The Open Market HomeBuy scheme remains limited in scope
The government has now introduced its new Open Market HomeBuy scheme, part of its low-cost home-ownership program, intended to expand the number of shared equity mortgages available. The government has said it hopes that the new HomeBuy will help around 100,000 people to own their own home by 2010 and that 20,000 of these will be helped by the new Open Market HomeBuy scheme. The Open Market HomeBuy scheme is intended for first time buyers, key workers and tenants of council houses and housing associations.
There has been criticism that the number being helped by the new Open Market HomeBuy is too small to significantly help the plight of many first time buyers. Indeed, 20,000 are just a fraction of those who continue to be locked out of the housing market. Moreover, although the majority of the industry has welcomed the new shared equity scheme, the number of lenders currently offering such mortgages is low, with currently just four lenders in the market (Halifax, Nationwide, Yorkshire Building Society, and Advantage) piloting the scheme to March 2008.
Scope for enlargement of Open Market HomeBuy
Nevertheless, there is scope for enlargement of the Open Market HomeBuy scheme if it proves successful. The scheme will go through a couple of years of trials to assess its strengths and opportunities for improvement.
Indeed, the government's shared equity taskforce intends to look at expanding shared equity even more. The aim is to increase the number of people able to benefit from shared equity schemes and help the growing number of 'intermediate' households, which number over one million UK households and which have incomes too high to qualify for housing benefit but too low to buy a home of their own.
The government believes that there is significant potential for shared equity schemes to bridge the divide between social renting and full homeownership. If the Open Market HomeBuy can be considerably expanded, then a sizeable number of first time buyers and key workers would see the scheme work for their benefit. 'End Intelliext
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