Blog > The latest on mortgage lending for community led housing

Wednesday 15 July 2020

Blog authored by Samantha Jones, Head of Community Led Homes 

More and more community led housing groups are developing discounted market value (DMV) homes as a way of keeping homes permanently affordable. But innovation isn’t easy and a lack of mortgage lending available for future residents can make things even trickier.

But if ‘housing’ was easy there probably wouldn’t be a community led housing movement. Everyone would already be living in a decent, secure and affordable home. 

So innovate we must.

Community Led Homes have commissioned an update to the National CLT Network’s 2017 report on the mortgage market landscape for community led housing. As the sector grows it is vital there are sufficient lenders willing to lend on the homes developed by community led housing groups.

  • There are now around 145 active mortgage lenders compared to 100 in 2017.

  • The mortgage market has become even more competitive with both existing and new lenders fighting for market share.

  • The top 6 lenders undertook 67.6% of business in 2018, and the top 15 lenders 86.5% (UK Finance, 2019).

  • Faced with such completion, the remaining 130 lenders are being outcompeted for “mainstream” mortgage customers and are instead, through choice or not, focusing on a wide range of “niche” markets.

With so much competition for ‘traditional’ business, most lenders are having to diversify their product range in order to grow their portfolios. Discounted market value is a ‘niche’ market. And with demand for DMV products from the community led housing sector expected to continue, they are a clear growth opportunity for lenders.

And yet, of the 15 lenders interviewed for this report less than half were familiar with the concept. It’s likely that this is the same for the wider industry.

The government’s First Homes programme and why it’s relevant

To the movement’s advantage, but completely unplanned, this research coincides with the announcement of the government’s First Homes programme. 

First Homes is a form of DMV sales. Homes will be sold to first-time buyers at a 30% discount and, as with community led housing DMV schemes, there is a resale price covenant which means the homes are affordable in perpetuity. A 1,500-home pilot will launch early next year.

Why is First Homes relevant to the community led housing movement? Because it will provide the volume in DMV sales that lenders say they need to start lending on the model. We hope that in turn that will mean more lending for community groups developing DMV.

Balancing innovation with standardisation

Discount market value is innovative. But as some groups have found, complex DMV  structures are often a turn off for lenders. There needs to be a balance.

For the research lenders were asked about two approaches to DMV: the first based on open market values (this is the approach First Homes will take) and the second pegged to local area incomes.  

The responses from lenders were telling. While none were opposed in principle to house prices being set as a percentage of Open Market Value, none were comfortable openly supporting sale prices being linked to local incomes. This is something community led housing groups looking into DMV will need to pay particular attention to.

What’s next?

The report made two clear recommendations:

  1. To convene a specialist taskforce of lenders to encourage the creation and growth of discount market value products.

  2. To advocate for an industry-backed standardised discount market value lease, adopted and maintained by Homes England.

The National CLT Network will now progress with these two recommendations: inviting organisations within the mortgage industry to join the taskforce, including Ecology Building Society our corporate partner and long-standing lenders to the community led housing movement, and working with them and Homes England to develop a standard lease. We’ll keep you posted on how this work progresses.

In the meantime, you can read the full report Taking the temperature of the industry: A survey of UK mortgage lenders on community led housing and discounted market value sales. Thank you to the Ministry of Housing, Communities and Local Government, and the Nationwide Foundation for funding this report.

Thanks also to our colleague Eliza Platts-Mills who commissioned and managed the project through to its completion before her Community Led Homes contract came to an end earlier this month.

 

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