Dr Kim McKeeCHR, University of St Andrews

Low Cost Homeownership Schemes in Scotland:

promoting sustainable home ownership?

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Aims and Objectives

Draws on recent qualitative research with low cost homeowners in Scotland, who have purchased through shared equity/ownership schemes

Aims to tease out the problems and the challenges, as well as the positive benefits of these initiatives from the perspective of the purchaser

The paper concludes by questioning whether such schemes can support sustainable homeownership

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Affordable Housing & the Credit Crunch

Growth of homeownership one of most significant social changes of the 20th century

Following the 2007 credit crunch, the UK has experienced significant turbulence in housing and financial markets

In this context, both the UK and devolved governments have promoted a series of shared equity/ownership schemes to encourage low cost homeownership

Continued push to encourage more households to ‘buy’, however raises questions about the sustainability of the sector

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The Schemes: in the Scottish Context Shared ownership: pay part mortgage/part rent, with

shares starting around 25 percent. Have the right to buy further shares up to and including 100 percent. They share all repair & maintenance costs with their landlord.

Shared equity: previously Homestake, now LIFT. Provides an interest free loan enabling purchasers to buy a majority share in their property (normally between 60 and 80 percent) thereby making mortgage payments more affordable. After two years they can increase their share up to 100 percent. When the property is sold both the shared equity purchaser and the developer will receive their relative shares of the property value. The scheme covers both new-build properties and second-hand properties on the open market. Households have sole responsibility for repair and maintenance of the property and are the legal owner.

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The Research

Seedcorn funded qualitative study June-Sep 2009

Interviews with 14 shared owners/shared equity owners

Three housing developments in the west of Scotland: Clydebank, Glasgow North East and Glasgow Greater Govan

Both local authority areas have levels of home ownership and average earnings below the Scottish average

POSITIVE BENEFITS OF THE SCHEME

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Affordability

Identified as main benefit By buying a smaller share in a property this

enabled purchasers to reduce their borrowings, required deposit, and monthly mortgage

For those previously in rental sector (majority of sample), the schemes also reduce the increase in housing costs relative to income

Makes homeownership more accessible and attractive to low income groups

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Because I am single there are only so many options open to me […] Certainly for a new build, which ideally is what I was certainly hoping for. It’s really, really hard to get a mortgage nowadays, the majority of mortgage companies are looking for crazy deposits maybe up to thirty percent which just wasn’t feasible for a single person to buy a house. So shared equity seemed the more logical approach to kind of get on the ladder

(Natalie, 18-25, shared equity purchaser, Glasgow North East, new household)

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Quality

Enabled households to buy a better quality house than they could otherwise afford

Broadened options by allowing them to enter the new build sector, as opposed to restricting them to older, cheaper, ex-council properties

Buying a new build in particular was perceived to reduce maintenance/repair costs

BUT snagging issues

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INTERVIEWER: You were talking about when you first started looking at houses in the local market. How easy was it for you to buy in the market?

ANGELA: Em a lot of them were affordable, but itwasn’t what I was desiring at all in quality. This has given me a better opportunity to get on to the property ladder.

(Angela, 36-45 years old, shared equity purchaser, Clydebank, previously in social housing)

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Local Connection

Enabled households to remain in the local area and retain important local connections with friends and family

Majority purchased in the geographical areas where they grew up – liked the familiarity and security it gave them

Older residents in particular were more dependent on these long standing networks

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INTERVIEWER: What keeps pulling you back [to this area]?

ELEANOR: I don’t know, I think it’s just what you’re used to. I know people as well. Like if I go up to Asda it’s guaranteed nine times out of ten times I always meet someone I know … old neighbours, or mothers of my son’s friends. You just do. I mean if I had to move I wouldn’t move too far away.

(Eleanor, 46-55 years old, shared owner, Glasgow Greater Govan, previously in social housing)

CHALLENGES AND PROBLEMS

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Financial Cost of Homeownership

Mortgage a source of anxiety: concerned about over-stretching themselves

But low-cost homeowners not a homogenous group Attitudes of those coming from PRS, OO or new

households was quite different to social renters Cost of homeownership goes beyond

monthly mortgage payment Insurance products Repairs and maintenance

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Well I think [a mortgage] is a noose round your neck, it is definitely a worry. You know you’ve got to make sure you keep your job and that. But the likes of having a great big mortgage that wouldn’t appeal to me at all. No. I don’t wantthe pressure, or worry or stress like that.

(Eleanor, 46-55 years old, shared owner, GlasgowGreater Govan, previously in social housing)

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Limited Financial Products

Limited range of lenders resulted in less choice for consumers Less competitive products with higher

interest rates Social justice implications of this policy

Need for more impartial financial advice and information, BUT not necessarily association’s role

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Originally, there were only two mortgage companies available to me […] I ended up having to go with the second mortgage company. They were only looking for the five percent deposit but it just kind of highlights with shared equity that there isn’t a lot of mortgage companies available so you are probably limited to what offers you could get anyway. You can’t search so much for better deals because there probably aren’t many deals to search for.

(Natalie, 18-25 years old, shared equity purchaser, Glasgow North East, new household).

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Staircasing

Flexibility of scheme in terms of being able to increase share at later date proved popular

BUT dependent on fluctuating house prices and the cost of borrowing

Important differences between the two schemes: more difficult for shared owners

Feelings of being ‘trapped’ in intermediate housing market as full homeownership out of their reach

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You’d need to take out another mortgage to get another percentage off [the association]. And I feel that all you’re doing is giving the association a loan again because all they’re going to do is take rent off you again […] It’s never going to be yours. And people buy a house so that it’s theirs. You struggle to pay it but at the end of the day that’ s going to be mine. But this will never be mine. I’ll struggle. This will put me in my grave trying to keep a roof over my head. And it will never be mine.

(Frank, 46-55 years old, shared owner, Glasgow Greater Govan, previously a homeowner).

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Administration

Not like buying a house on the open market Application process complex, drawn out and

plagued by uncertainty Lack of information about how the schemes

operate: What happens when property sold Restrictions of the scheme Division of rights and responsibilities between

homeowner and the developer Need for better quality and clearer information

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Conclusions Overall, purchasers were positive about the

schemes: Opportunity to purchase more affordable, better

quality housing with the flexibility of being able to increase their share at a future date

But there are problems: The cost of homeownership goes beyond the monthly

mortgage payment Ability to staircase up their share is questionable Lack of clear, accessible, good quality information

Government needs to give further thought to the merit of these schemes