3. The Shared Equity Approach
This chapter considers stakeholder awareness of the range of shared equity approaches available currently in Scotland and their impressions about the concept of shared equity. It also reports on lenders' stated reasons for offering a First Home Fund-compatible mortgage product and developers' stated reasons for promoting the Fund to potential buyers.
Awareness of shared equity approaches in Scotland
All professional stakeholders were familiar with the concept of shared equity and the range of shared equity products that were being used in Scotland prior to the establishment of the Fund. Lenders had a (sometimes long) track record in offering shared equity mortgage products and all IFAs had experience of advising customers interested in either Help to Buy or one of the Low-cost Initiative for First Time Buyers (LIFT) schemes. All developers we interviewed were also very familiar with the range of shared equity products in Scotland and with Help to Buy in particular.
Many but not all Buyers had some awareness of the concept of shared equity prior to making enquiries about First Home Fund. Those aware of shared equity generally knew that the Scottish Government had products to help people buy a home, most commonly shared ownership or Help to Buy, sometimes as a result of friends or family having accessed such support previously.
Some Buyers were familiar with the First Home Fund from having carried out extensive, usually web-based, research as part of their preparations for buying a home. In contrast, others had first heard about the First Home Fund as part of conversations with developers or mortgage advisors, and occasionally lenders. (How buyers found out about the Fund is covered further in Chapter 4).
Potential buyers' views on shared equity approaches
A clear message from Buyers, which was reinforced by IFA and developer feedback, was that if they had been able to move forward with buying the same property without accessing support, they would have preferred to do so. This was most commonly expressed in terms of being independent and being able to 'stand on their own two feet' and some said they preferred the idea that they owned all of their home, rather than another party owning a part of it.
Although not necessarily a preferred route, shared equity was generally described as a good, reasonable or pragmatic choice. The decision to proceed with applying to a shared equity scheme was generally reported as being an easy and straightforward one.
"Right at the beginning...it was obvious that I needed help from somewhere because of where I wanted to buy...not saying I would have chosen it, but it was a pretty obvious one once I knew there might be a way." (Buyer)
Both Buyers and Non-buyers express strong support for approaches that helped potential buyers like themselves to purchase a home that meets their needs and preferences. They also welcomed the opportunity to buy in areas where they had connections and wanted to live. Some also felt shared equity approaches made people like themselves more confident about being able to afford mortgage repayments going forward. The impact of accessing a shared equity scheme and specifically the First Home Fund, are explored further in Chapter 6.
The Non-buyers had chosen not to proceed with an application specifically because they did not want to go down a shared equity route. IFAs and lenders were, however, aware of people who had decided against using any shared equity product. The most common reason given was that people were able to proceed without support, reflecting the earlier point that people preferred not to access support unless they judged it necessary. It was also reported that some people preferred not to 'lose out' on a proportion of any increase in the value of their home when they came to sell in the future whilst others did not wish to be constrained by any of the conditions associated with accessing shared equity funding.
Buyers and Non-buyers alike felt it was reasonable to assume that the Scottish Government would not set up a scheme with unfair terms and conditions and would act in the best interests of a home buyer. Such perceptions were echoed by IFAs and some lenders, who described shared equity, and more especially the First Home Fund, being 'an easy sell'.
"...if it's by the Government it must be an acceptable scheme. It's not like you are handing money over to a separate scheme that may not be funded by the Government or backed by the Government." (Buyer)
There was also a view that, if anyone other than yourself is to potentially benefit from any increase in the value of the property, then the Scottish Government, and by extension the public purse, would be the preferred option.
Other stakeholder views on shared equity approaches
All the professional stakeholders who took part in the study were supportive of Government-led and backed approaches that help people access the owner-occupied housing market.
Lenders and developers generally reported that the principles underpinning shared equity sat very well with their own business strategy and their desire to see a good supply of both existing and first-time buyers active in the market. Lenders were also particularly likely to stress that they were keen to support Government-led policy initiatives when possible.
The role of shared equity products in facilitating effective demand was highlighted, with developers in particular pointing to their importance in supporting the continued provision of starter homes and smaller new build properties. For development sites with a significant proportion of smaller or less expensive homes, first-time buyers were described as being critical to maintaining a good and timely level of sales, particularly in the current uncertain times.
Lenders, developers and IFAs thought that a strength of shared equity was that it enabled first-time buyers to overcome difficulties in saving for a deposit, especially for those without access to financial support from family or friends. They also indicated that difficulties saving for a deposit were most acute for people renting in the private sector. Buyers' reflections on these issues are covered in Chapters 5 and 6.
Lenders' decision to offer a First Home Fund product
As noted in Chapter 1, thirteen lenders offered a mortgage to buyers using the First Home Fund. All the lenders that participated in this study said the decision to offer such a product had been a relatively easy and straightforward one because:
- Of prior experience of other shared equity schemes.
- The First Home Fund fitted well with their business strategy.
- Scottish Government plans for the First Home Fund were well communicated with sufficient advance notice given.
Lenders welcomed the straightforward nature of the First Home Fund, including eligibility criteria and application processes. This had made it relatively simple to modify existing policy and procedures for shared equity-compatible mortgages, including risk assessment arrangements. It also meant that no substantive and potentially costly changes to information and communications technology (ICT) systems had been required. This was a very important factor for larger UK-wide lenders for whom the First Home Fund was likely to represent only a very small share of their mortgage business, especially in the pilot phase.
Although not necessarily wishing to see a proliferation of shared equity schemes, lenders felt there were advantages to having a manageable range of options. Apart from supporting a wider range of potential buyers, lenders pointed to the importance of having a reasonably diverse mortgage book and the ability to spread risk across a range of products.
Developers' decision to promote the First Home Fund
As with the lenders, all the developer interviewees had previous experience of supporting and promoting Scottish Government shared equity products and Help to Buy in particular.
Like lenders, developers said it was a straightforward and obvious decision to promote the First Home Fund. It was viewed as a helpful addition to the range of shared equity approaches offered by the Scottish Government and was perceived to sit well with Help to Buy. Developers reported that:
- Relative to other shared equity products, the First Home Fund has been easy for buyers to understand.
- By boosting effective demand from first-time buyers, the First Home Fund has helped to keep the housing market flowing and unlock pent-up demand from existing homeowners wanting to move.
- The absence of a purchase price cap has opened up a greater proportion of the new build supply to first-time buyers.
Themes around the focus and eligibility criteria for the First Home Fund are in covered in greater detail in Chapter 5.
Kirsty is 25 years old and lives and works in a west coast town. She returned to her parental home after university and for the last 3 years has been employed as a support worker at a third sector project that works with vulnerable adults. Her salary varies because of shift working but averages around £24,000 a year. By living at home, Kirsty had been able to save around £11,000 and planned to use around £8,500 as a deposit, with £1,500 used to cover solicitor and other fees associated with buying a property. She planned to use the remaining £1,000 to start furnishing her new home.
Kirsty knew about the First Home Fund and Help to Buy schemes having carried out extensive research into home purchasing over the last 2 years, but originally thought she’d prefer just to buy outright.
She had been looking at flats in her local area but was struggling to find anything suitable and was starting to look further afield. However, she didn’t want to move too far away, particularly as her shift patterns mean she can be coming and going from work late at night.
When a 2 bed terraced property was put up for sale in her local area she decided to put in an offer and make an application to the First Home Fund. She paid £132,000 - around £1,500 over valuation - and accessed £25,000 from the First Home Fund.
Kirsty moved into her new home in September. It is a 10-minute walk from work in one direction and 5-minute walk from her parent’s home in the other. It needs some work, but she is planning on doing that herself (with some help from friends and family) over the next couple of years. She expects it to be her home for the next 5 years at least.
“I really don’t think I could have done this for a couple more years at least. My Mum and Dad are great, but it felt like it was time...”
“I honestly can’t say a big enough thank you... just please say thank you from me.”
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