First-buyer loans could be sold off
According to reports, Barratt Developments, Britain’s largest volume house builder, is in negotiations with Credit Suisse to sell a tranche of the £170m of loans to its customers, amassed since the recession hit new home sales in 2008.
Shared equity mortgages enable builders and the Government to take stakes in homes – they can be for up to 50 per cent of the price – to ensure first-time buyers can afford to move in.
The loan must be paid back over a fixed period, with the value of the builder’s stake rising and falling in line with local prices.
Under the FirstBuy scheme announced in the March Budget, some £500m of Government funds will go into a scheme which aims to get first-time buyers into a home of their own with a deposit of only five per cent.
Barratt got £25m of the HomeBuy funds and soon reported 12,000 applicants registered for the scheme.
According to the Financial Times, some builders have written down the value of these loans on their annual accounts, which could enable them to dispose of the loans later at a discounted price.
Any subsequent losses will be less important than the sales they have achieved during a particularly difficult time in the market.
Builders have spent around £1bn of their own money to push through shared equity sales since 2008. Now many would like to reinvest the cash in new land or fto finish schemes, which is why they could welcome an exit.
Barratt, which reported pre-tax losses of £4.6m in the six months to January, is believed to make around a quarter of its sales through shared equity purchases.
But, like other builders, it has no wish to sit on a portfolio of home loans which could take many years to be repaid.
The idea of batching up home loans and selling them on to a third party is not new; indeed, this securitisation of loans was actively promoted by lenders such as Northern Rock ahead of the credit crunch.
Some critics of shared equity schemes, including FirstBuy, have said the scheme could leave homebuyers badly exposed if house prices fell much further.
But Stewart Baseley, executive chairman of the Home Builders Federation, says any move to sell loans would be “sensible”.
He says: “Over the past three years, home builders faced with the toughest environment for decades have maintained jobs and economic activity while helping close to 30,000 first-time buyers into home ownership.
“The investment by builders has amounted to £1bn and it’s a sensible move for developers to investigate selling their loan books and freeing up cash to build the homes needed to tackle the country’s housing crisis.”