Lenders failing on affordable homes

Mortgage lenders are frequently failing to give proper advice on affordable homeownership schemes, with the result that many first-time buyers are losing out on getting their feet on the bottom rung of the property ladder.

Some borrowers, including key workers, are approaching high street lenders for loans, but are finding that branch staff are either unaware of the full range of schemes available or offer the wrong advice, according to affordable housing specialists SPF Sherwins and firstrungnow. com, an information website for first-time buyers.

In some cases, problems with affordable housing mortgages are not picked up until solicitors are completing the paperwork and the sale then falls through because the buyer cannot get the loan in time, say Sherwins.

Helen Adams, managing director of firstrungnow.com, which allows users to post their experiences of affordable home ownership on the site, says: 'While the mortgage lenders and advisers are pretty knowledgeable about their own products, it seems their knowledge of affordable housing schemes is rather scant.'

Problems cited by SPF Sherwins and users of firstrungnow include:

· lenders offering only one type of scheme, but branch staff not giving the correct information so buyers assume they are being sold a different product;

· buyers entering into a shared ownership deal but discovering they need to pay for a larger share than originally thought, putting the property beyond their means;

· lenders withdrawing loan offers when they learn buyers are buying homes through affordable housing schemes.

Steve Pinches, 27, from Woolwich, south east London, said: 'When I was looking for a shared ownership mortgage, many of the "compare and apply" tables on websites didn't cover this area. Then the mortgage adviser recommended by my housing association suggested only one possible mortgage for me. At 100 per cent loan to value, I wasn't happy with it.

'After talking to friends I realised there were others, but it was very frustrating that I had no way of finding out which lenders offered which particular schemes.'

One of the major problems with affordable housing schemes is the confusion surrounding the different types. Richard Stone, director of SPF Sherwins, explains: 'Every lender has a different angle, or different wording on the schemes so it is a very confusing area.'

There are three schemes: shared ownership; HomeBuy; and key worker schemes. Shared ownership allows buyers to buy part of their home and then rent the remainder from a registered landlord such as a housing association or a designated property developer. They can buy a share of the property from 25-75 per cent depending on their financial circumstances and have the option to buy further shares in their home.

HomeBuy gives tenants in social housing the option to buy their own home. Tenants buy 75 per cent using a mortgage and personal savings, and are given an interest free loan by the housing association to help fund the remaining 25 per cent of their property.

When they sell their home, they have to repay the loan. However, if the price of the property has increased, so will the loan.

The key worker scheme is aimed at helping teachers, nurses, police officers, social workers and others in London and the south east buy a home they could not afford on the open market. This is one of the biggest areas of misunderstanding, as key worker schemes also include shared ownership and equity loan schemes, which are similar to HomeBuy schemes.

Many private companies and property developers are also advertising 'key worker home loans', but these are not part of the official Housing Corporation schemes, so buyers are led to believe they have government backing.

A spokesman for the Office of the Deputy Prime Minister said: 'Government schemes are run through local housing associations and we have had no problems with these. But there are a lot of schemes from private developers that aren't run by us and this obviously causes a lot of problems.'

In a bid to end the confusion, the government is set to re-launch the affordable housing schemes next spring. The new schemes aim to be easier to understand and include a deal with the Council of Mortgage Lenders so borrowers and lenders will be fully aware of the schemes they are buying and selling.