Everything from sub-25% shares to geographical opportunities to commercial viability was up for discussion at this year’s Affordable Home Ownership conference. And this time around, everyone wanted to take part.
I’m not long back from this year’s AHO, and I’m all excited. The stars may be falling into alignment: we may have witnessed a breakthrough for the Shared Ownership sector. Or at least the first light-leaking cracks of one.
Run by the National Housing Federation, this year’s conference was the usual annual coming together of the various sectors of the housing and property industry. Lots of Registered Providers were there, plenty of us brokers, and, most importantly, a handful of big lenders.
Business as usual? Not quite. It was better than business as usual. This year, for the first time in my (rather extensive!) experience, the sound of really meaningful understanding was in the air.
Conversation = understanding
Many of those in attendance from the same sectors – the RPs especially – are facing similar challenges. “How are you doing?” and “Oh great!” framed lots of constructive conversations between them in which processes, best practices, and solutions that did and didn’t work were shared and discussed.
But best and most important of all was the tinkle of cross-sector communication. Specifically, a newly energised interest from the lenders in engaging in conversations about SO – not to mention the transformation that their input could lead to.
It wouldn’t be an overstatement to say that the lenders were entering into deeper conversations than ever before; listening with more intent and asking the right questions.
Long may this cross-sector communication continue.
New lease model
Talking of interesting discussions, I was lucky enough to be able to lead a session on the new lease model. I think this was because, as a long-serving broker, I’ve witnessed quite a few of these reforms and I’ve perhaps got a more pragmatic viewpoint; the industry’s initial fear and catastrophising softens into acceptance and eventually turns into optimism. We’re seeing the new lease being applied to sales now and it was lovely to hear stories about this shift in perception and how RPs were talking about the positives and how the sector can embrace fresh opportunities.
Yes, there were some awkward conversations on the day and our shortcomings, or our perceived shortcomings, were laid bare for all to see, but we need to have frank, honest exchanges if we’re ever going to improve as a sector. We need to constantly challenge what we’re doing – and question why we’re doing it – if we want to get better results.
Barriers to overcome
The report on SO recently published by Lloyds – though a largely positive step and a much-welcome indication of the growing interest that lenders are taking in the sector – shone a light on some discrepancies in how the outside view of SO still doesn’t match up with that of those of us who know it up close and personal.
The biggest and most troublesome of the misunderstandings about SO is that it only comes in a one-size-fits-all format. Yes, Shared Ownership is one product. But that one product can look very different depending on the circumstances of each customer it’s applied to.
One product, many nuances
Let’s put that into context. Take Hypothetical Registered Provider A… let’s say most of their customers live in London. Most are professionals. Their local housing market is dominated by high value properties. What most of these customers need are SO products that offer lower loans, lower shares and lower rents.
The trouble is, there’s a myth among those who aren’t in the know that SO rents are fixed at 2.75%, and that that never changes. But here’s the thing: in reality, it can and often does.
Rent can be anywhere as low as 0.5%. But because many lenders aren’t aware of that, they base their risk profiling and affordability checks on the assumption that rent for SO properties is fixed at 2.75%. The result is that lots and lots of what would be high value customers are mistakenly considered unable to afford rents that are actually much lower than they’re believed to be. For that reason, those customers are then mistakenly locked out of SO homeownership. The untapped potential market those customers represent is huge.
That’s just a London-specific example of how incomplete understanding of SO is causing lenders (and RPs, and us brokers!) to miss out. Around the country, local property markets are distinct. A better industry-wide understanding of SO’s largely unrecognised flexibility to adapt to district local markets would open up a world of lucrative opportunities.
Sub-25% shares are viable
During the conference, I was asked whether I can see more lenders embracing sub-25% shares. “No”, I said. “Would I like it to?” “Yes. But in the right areas.”
Currently, only two lenders (on TMP’s books) embrace sub-25% shares. That’s a disappointingly low number. The reason that number isn’t higher is down to another general myth – one that again circles back to the whole one-size-fits-all misunderstanding. This one is all to do with commercial viability.
Granted, at the lower end of the property value scale, the commercial viability of sub-25% shares is an issue. At the higher end, however, it simply isn’t. And this is something many are yet to catch onto. Say for example you’ve got a million pound SO property (hi again, London!) – a 10% share of that is £100,000, which, obviously, is a good deal more valuable than a 25% share of a £250,000 SO property.
In a high value local housing market like London’s, sub-25% shares make a lot of sense. Not only do they have the potential to offer decent returns for lenders, they would also be the solution that many people currently priced out of homeownership are looking for.
“Yes”, you might say, “but then isn’t the commercial viability of sub-25% shares in high income, high property value areas offset by its lack of commercial viability in areas where incomes and property prices aren’t as high?”
Good question. And sadly, yes it is. But that issue could be resolved simply with the introduction of sub-25% products that are only available to customers looking to buy a share in high value properties. Properties, say, for argument’s sake, with a value of over £500,000. See – it’s all about understanding.
The conversation has begun
For now, we’re stuck in a chicken and egg scenario. Few people will be interested in SO if the lenders don’t offer it and the lenders won’t offer it until we get more customers. So, what comes first?
Conversation, that’s what. And at last, we are beginning to hear it happening.
That’s why this year’s AHO was so exciting. The lenders were there, they were talking, they were listening, they were learning more about the sector. They were engaged in conversations with people and using their opportunity to ask key industry figures “what about this”, “what about that”. The exchange of understating that came out of that was invaluable.
Will talk turn into action?
What me and many others in the SO sector are hoping is that understanding of SO’s finer details will begin to filter into future reports from the lenders. When it does, we’ll start to see many more taps turning on. The conversations I had and heard held lots of promise. I’m glad. But will they translate into the much better industry-wide understanding of SO we and so many others badly need?
Come next year’s conference, we’ll probably have our answer.
At TMP The Mortgage People, we publish a monthly market update, blogs and data reports exclusively for Registered Providers. To receive our amazingly helpful insight, visit: https://survey.zohopublic.eu/zs/tmB8X1