Shared Ownership schemes may have a place for preventing repossessions, says BSA

Published: 04/10/2011

The Building Societies Association (BSA) is calling for mortgage lenders and the government to run a feasibility study to test the legs of their shared ownership proposal for existing homeowners.

In a report entitled “A joined-up approach to helping mortgage borrowers”, the BSA proposes four potential solutions, including the shared ownership scheme, to assist struggling homeowners from having their house repossessed.

Shared ownership was initially introduced to help people who wanted to purchase a property but who couldn’t afford to buy it outright. Under the scheme, the prospective homeowner could buy a share of a property, obtaining a mortgage for it, and pay rent on the remaining share to a housing association, landlord or developer.

Under the BSA proposals, this shared ownership scheme would work in reverse; homeowners would be able to sell a share of their property to a third party and pay a rent on it whilst retaining the right to live there. If circumstances changed, for the better or the worse, the homeowner could either buy back the sold-off share to regain full ownership, or sell off the remainder of the property and become its tenant.

First-charge mortgage repossessions have decreased by 7 per cent year-on-year compared to the first six months of 2010. However, second charge mortgage repossessions, despite being 12.8 per cent lower than in the first six months of 2010, have actually seen a 1.7 per cent increase in Q2. This is the first year-on-year increase since Q2 2009.

Paul Broadhead is the Head of Mortgage Policy at the BSA. He said:

“Consumers get into difficulty meeting their mortgage repayments for a variety of reasons; in many cases it is caused by an unexpected life event, such as job loss or relationship breakdown.

“It is easy when reading statistics on repossessions to lose sight of the fact that each one represents a family who have lost their home. This is why the BSA is urging the industry, the government, and other stakeholders to work together to help those at risk of losing their home.”¹

But is a shared ownership scheme a feasible solution? Ray Hugill, Independent Chairman of the Association of Arrears Mediators, isn’t convinced:

“Schemes like the BSA is suggesting could be useful if used in conjunction with other initiatives, but market conditions are not favourable for the idea.

“With the base rate at an all-time low and rents rising, switching from mortgage to rental payments will not necessarily reduce borrowers’ outgoings.”²

¹Mortgage Strategy (Sep 2011)
²Mortgage Strategy (Sep 2011)

Content correct at time of publication

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