Labour urged to keep homebuying simple

The government was today urged to keep new schemes for first-time buyers simple by the body representing the UK's mortgage lenders.

Responding to government proposals to introduce new equity loans for first-time buyers and key workers, the Council of Mortgage Lenders (CML) said it agreed that there is a good case for expanding affordable home ownership.

However, it added that new schemes must be kept simple and the government should be explicit about the aims of low-cost home ownership.

The CML said one of the things that has made the existing Homebuy scheme so attractive to potential buyers has been its simplicity.

While it agreed that rationalising the range of existing low-cost home ownership options would be a good thing, it warned that there was a risk that the changes could make the existing Homebuy scheme more difficult to operate.

The proposal of a 3% charge on equity loans made by the government, it said, is likely to necessitate a lease between the homeowner and the registered social landlord running the scheme.

This type of arrangement already deters many lenders from offering mortgages on part-rental shared-ownership schemes, and limits the choice of mortgages available to the homebuyer. The current Homebuy scheme does not involve a lease.

The CML said the government also needed to be quite clear about the objectives of the scheme - whether it sees low-cost home ownership through Homebuy as a stepping stone towards full ownership, or as a permanent arrangement for households. Otherwise there is the risk of confusion among consumers and their advisers.

It believes it should be seen primarily as a stepping stone towards full ownership. It said incentives to "staircase up" - buying an additional share in the property - should be considered, and there should be regular reviews of individuals' circumstances to establish whether they can yet afford full ownership.

"We applaud the government for pushing consideration of low-cost home ownership firmly up the policy agenda," said CML deputy director general, Peter Williams. "We now need to reach a clear, shared vision of what this halfway 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."

The existing Homebuy scheme enables local authority tenants and tenants of registered social landlords to purchase a home on the open market with the help of an interest-free equity loan equal to 25% of the purchase price. The remaining 75% is funded by the applicant through a conventional mortgage and savings.

Under the proposals outlined in the consultation document there would be three Homebuy schemes, each designed to give key workers, social tenants and other first-time buyers the opportunity to buy a share of a home through a new equity sharing scheme.

Social Homebuy would enable local authority and housing association tenants to buy at a discount a share in the home they currently occupy; new build Homebuy would enable people to buy a share of a new home built with public subsidy; and open market Homebuy would enable them to buy a share of a home on the open market.

The consultation period ends on June 24.