05/12/2022

While the housing market continues to experience peaks and troughs, the Shared Ownership market specifically is looking much healthier after the challenges of 2022.

As we head into 2023, lenders are re-entering the market at an increased rate and service levels are looking much more positive.

Below, we take a closer look at how the Shared Ownership mortgage market is performing throughout the final quarter of the year and what we can expect going forward.

Number of Shared Ownership mortgage products on the rise

Despite the number of mortgage products on the market falling during the summer due to uncertainty, the Shared Ownership mortgage market has largely settled during Q4 2022 and lenders across the board are scrambling to offer a wider range of products.

The number of mortgage products available across all LTV rates increased during November, with the largest increase occurring in mortgage products representing a 95% LTV.

The breakdown of the products available is as follows:

95% LTV - 83 products (an increase of 43)

90% LTV - 154 products (an increase of 56)

85% LTV - 187 products (an increase of 74)

80% LTV - 193 products (an increase of 76)

75% LTV - 223 products (an increase of 84)

With 83 products now available for buyers with a 5% deposit, we’re definitely seeing signs of a healthier market.

Similarly, the total number of lenders operating in the Shared Ownership space has increased to 27, with the total number of SO lenders offering 95% sitting at 18.

How have service levels changed across the space?

With interest rates seemingly stabilising at the ‘new norm’ between the high 5% and low 6%, service levels have also improved with it now taking around 2 - 3 days for new application submissions.

It’s believed that service levels have largely improved due to the reduced amount of business occurring across open market sales, the buy-to-let industry and resales.

As lenders report a 50% decrease in mainstream sales and mortgages, the same can not be said for Shared Ownership products.

Metro Finance reports that across 2,400 assessments over September, October and November, Open Market sales have slowed and the majority of activity is in affordable schemes.

With demand falling in the open market and a 22% rise in income occurring for SO buyers, it’s logical that open market buyers are moving into the shared ownership market, which is contributing to healthier shared ownership demand and lending.

How have market changes affected the mortgage options available?

As interest rates, service levels and the products available change, the viability of mortgage options has changed.

According to Emilia Hunt, Sales Director at Metro Finance:

“Fixed rate mortgages, for a first-time buyer, is usually the most common type of rate. A fixed-rate mortgage means the interest rate won’t change for a fixed period.

 

“The benefits of a fixed rate are fairly self-explanatory - irrespective of what happens, you pay that set rate for the agreed upon time period. The disadvantage is that you may end up paying a little more for that security.

 

“Tracker rates are riskier as they follow the Bank of England base rate. The benefit of this is that rates currently sit around 4.09% at 95% for shared ownership, which is lower than a fixed rate. It’s important to remember that these rates will likely increase, so it’s best to plan for higher payments and consider this current period as a short-term gain.

 

“For those where affordability is tight, it might be best to go with a stable fixed rate, rather than running a risk.”

 

How are interest rates set to react?

While there’s no doubt that uncertainty around interest rates is still rife, the reality is that an interest rate hike was always on the horizon.

The long-term average for the Bank of England hasn’t been at its ‘norm’ since 2008, which is what we could currently be seeing a return to.

Economists suggest that the base rate will continue to rise, likely hitting 4.8% by summer 2023. It’s expected that the fixed rates we’re currently seeing are based on the expectation of a higher Bank of England base rate going forward.