The UK’s housing market benefitted from Government support during COVID-19 and both activity and price growth continued healthily.
Now, however, the housing market is bearing the brunt of economic turmoil and the cost-of-living crisis: higher interest rates have pushed up mortgage costs while soaring inflation is eating away at savings; households are battling the biggest drop in real incomes in generations; and housing sits at its least affordable point since records began with the average home currently costing just over 9 times the average local wage, compared to 3.5 times in 1997.
A tough outlook
A lack of housing supply has been a major factor in the significant house price increases we have seen over the last few years – a situation which is clearly unsustainable.
The combination of lack of supply and spiralling prices has hit first time buyers particularly hard.
Added to that, we are now seeing sharp increases in the cost of borrowing alongside double-digit inflation. For many, a foothold on the housing ladder seems ever further out of reach.
A roadmap for progress
Leeds Building Society has set out a roadmap for progress – a plan to tackle the UK’s homeownership crisis – based on seven key points:
- Build more homes
- Tackle the skills gap in construction
- Maximise the potential of existing properties
- Build sustainability into the housing market
- Increase routes to homeownership
- Help people save for a deposit
- Provide meaningful support for borrowers
And it is the fifth point, around creating more ways for people to buy a home, that is the most immediately actionable while the traditional route to ownership feels off limits for so many.
An immediate solution
Shared Ownership, which means buyers need a smaller deposit, can help prospective first-time buyers get on the ladder sooner than if they have to save up to secure a traditional mortgage. The purchase is split into an ownership and a rental element, with a local authority or housing association as the landlord.
While it has the potential to help lift people out of the expensive rental market and get them investing in their future sooner, only around a fifth who purchased recently used it and just one in ten are planning to. Survey respondents told us they believed a Shared Ownership mortgage would be more expensive than a traditional deal and that it would be too complicated, while some hadn’t heard of it at all.
This sits in contrast to the experiences of those who used Shared Ownership recently. They reported a good experience, being able to find a property they were happy with in the right area, and three quarters would recommend it to others looking to buy their first home.
Spreading awareness about Shared Ownership
Most people hear about Shared Ownership through word of mouth – only 4% hear about the scheme through a mortgage broker, from their bank or building society, and around 6% from an estate agent.
For this scheme to make a difference, especially during the tough times savers are going through, we need to spread awareness.
Responsibility sits with the mortgage industry as a whole – with lenders, brokers and estate agents speaking to first-time buyers and more broadly in the way the industry communicates about the routes to home ownership. It can’t be an afterthought – Shared Ownership needs to be front of mind, only then will it start making the difference it’s capable of.
Martese Carton is director of mortgage distribution at Leeds Building Society
