Banks refuse mortgages on low-cost homes

8 Jun 09
Housing associations have blamed mortgage lenders for accentuating the problems they face selling low-cost homes

29 May 2009

By Neil Merrick

Housing associations have blamed mortgage lenders for accentuating the problems they face selling low-cost homes.

According to the National Housing Federation, banks are refusing to offer mortgages to key workers and other first-time buyers for shared ownership schemes.

The federation estimates that up to £500m of business was turned away by banks in 2008/09 because shared ownership deals were seen as potentially risky in the same way as sub-prime mortgages.

But although low-cost shared ownership is aimed at households on modest incomes, the NHF claims that families joining these schemes are no more likely to default on their mortgages than other borrowers.

Recent figures from the Tenant Services Authority show that 8,742 low-cost properties built by housing associations in England remained unsold at the end of March, down by 16% from the 10,359 that lay empty in December. In the past quarter, associations sold 4,977 homes (generating £401m) and converted 4,832 to social renting.

The NHF claims that about 90,000 households have expressed an interest in low-cost properties currently on the market. When the 15,000 homes due to be built in 2009/10 are added to the equation, about £1.5bn of mortgage business is potentially available to banks during the next 12 months.

David Orr, NHF chief executive, said the government should compel banks that were bailed out with public money, such as Northern Rock and Royal Bank of Scotland, to lend to families seeking shared ownership properties.

‘The excessive risk-taking of the banking sector that heralded the downturn has been replaced by excessive caution,’ said Orr. ‘Thousands of lower income households with a good credit rating are being denied the opportunity to part-buy decent homes.’

Figures published by the Department for Communities and Local Government on May 21 show that housing associations started building 4,500 homes between January and March – up by 5% on the same quarter in 2007/08. But the number completed fell by 4% to 6,740. Overall completions, including those by private house builders, fell by 20% to 133,710 during 2008/09. Local authorities built 510 homes, up from 320 the previous year.

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