Press Release

Keep homebuy simple, urges CML response to Government

In its response today to the Government's consultation on extending the homebuy equity loan scheme, the Council of Mortgage Lenders supports the Government's view that there is a good case for expanding affordable home-ownership.  But the CML urges the Government to keep the scheme simple, and to be explicit about the aims of low-cost home-ownership.
 
One of the things that has made the existing Government Homebuy scheme so attractive has been its simplicity.  The CML greatly welcomes the Government's proposals to rationalise the plethora of existing low-cost home-ownership schemes into a simpler suite of Homebuy variants.    Even so, there is a risk that the changes will introduce more complexity compared with the existing Homebuy scheme, and so make the scheme more difficult to operate.

For example, the Government is proposing to introduce a 3% charge on the equity loans which it makes.  Although the consultation paper is not explicit about how this would be enforced, the CML understands that the Government anticipates that the registered social landlord would need a lease to cover this element.  Yet leases are one of the problems for lenders in existing part-rental shared-ownership schemes, which the current Homebuy scheme successfully manages to avoid.  It would be a retrograde step to introduce lease arrangements into a scheme which is attractive precisely because it currently avoids such complexity.

The Government also needs to be quite clear about whether it primarily sees low-cost home-ownership through Homebuy as a stepping stone towards full ownership, or as a permanent tenure for households.  Otherwise there is the risk of confusion among both consumers and their advisers.  The CML believes that it should be seen primarily as a stepping stone towards full ownership - so incentives to "staircase up" should be considered, and there should be regular reviews of individuals' circumstances to establish whether they can yet afford full ownership.  Of course, not all households who become part-owners will ultimately be able to achieve full ownership, and this is not a problem.  But the intention to use the tenure as a springboard towards full ownership should nevertheless be explicit so that there is less risk of confusion.

Encouragement to become full-owners over time, as long as this is affordable, also helps to ensure that people do not end up becoming disadvantaged by the very tenure that has been designed to help them.  Shared owners are responsible in full for maintenance and repairs, so it makes sense for them to make the transition to full ownership when their circumstances allow.  And the CML believes that if people own less than 50% of their home they should not, in any case, be responsible for all the maintenance costs.

The CML also raises technical issues in its response.  The most important of these is the definition of "qualifying lenders" who are able to provide mortgages to people who are participating in the Homebuy scheme.  At present, some lenders who are fully authorised by the FSA are nevertheless precluded from being involved, because qualifying lenders can only be banks, building societies or friendly societies.  This definition is now outdated and should be replaced by a requirement to be a lender authorised by the FSA for mortgage purposes.

Commenting on the consultation process and response, CML Deputy Director General Peter Williams said:

"We applaud the Government for pushing consideration of low-cost home-ownership firmly up the policy agenda.  We now need to reach a clear, shared vision of what this half-way tenure is for, and how to deliver it as simply and cost-effectively as possible.

"People who will get the chance to become home-owners through Homebuy do not want a complex, bureaucratic system.  Neither do lenders.  So we urge the Government to ensure that the "keep it simple" principle is kept at the heart of the reforms.

"We are continuing to discuss with the Government how lenders can interact with the scheme.  Obviously the main way in which this happens is through the mortgages that sit alongside the Homebuy loan.  We are also continuing to explore how lenders might help to fund the equity loan element and so enable the public funding available to stretch further and help a greater number of households."

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