On the barren shared ownership plains of Milton Keynes thousands of Lesser Spotted Shared Ownership Leases wander in herds across the landscape. They were born in better times when mortgage funding was thick and lush. Now they languish and in all probability represent a species on the verge of extinction. It’s a toss up between the Giant Panda and the “Lesser Spotted” as to which will die out first.
So where does the threat of extinction come from? It comes from a drought in mortgage funds that has become more pronounced following the so-called “credit crunch”. There is a well of funds that could provide life for these ailing creatures, but it is controlled by the Council of Mortgage Lenders. They will only extend relief if leases are branded with the magic initials “MPC”. The Lesser Spotted is not so branded.
MPC stands for Mortgage Protection Clause. It is facility within a lease that allows a lender to cover its losses on the sale of a repossessed shared ownership property. Provided certain pre-conditions have been met prior to the creation of the mortgage the lender can approach the landlord and require the landlord to handover, at very little expense to the lender, the remaining (landlord’s) share in the repossessed property. These clauses did not exist until the late 1990’s. Unfortunately, for many householders in Milton Keynes, their shared ownership leases were granted before the advent of these clauses.
We now have a situation where it is not possible to say with absolute certainty whether these leases are mortgageable, or if they are that they can be mortgaged for more than 75% of their value.
Given that shared ownership was developed as a means of providing low-cost housing it is reasonable to assume that many prospective purchasers will not have large amounts of cash available to them to fund the size of deposits that lenders will expect them to provide. At a stroke the lenders have seriously undermined the shared ownership concept.
Lenders argue that it is open to shared ownership landlords to vary the affected leases. This is true and some have but the policy has not been widely adopted. There is no commercial reason why landlords should agree to. MPCs are potentially costly. They are being asked to potentially sign away a valuable asset for little in return. It is unlikely that insurers will want to come into the market to provide in indemnities to lenders where no MPC exists, except on commercially viable terms. So far, I have yet to see an insurer who will.
Where does that leave the buyer who wants take on a Lesser Spotted Shared Ownership Lease, or the tenant who is presently owns one? For the time being somewhat in the wilderness, which is a shame. These leases meet the purpose they were designed to serve. They provide a good and marketable security for mortgage purposes. For the prudent lender there is no reason why the borrower is more likely to default because they own a shared-ownership lease without a MPC than any other borrower. Nor is there any particular reason to suppose that such borrowers will more readily fall into negative equity.
The solution lies with the lenders and the landlords. Either lenders will have to relax their lending criteria or landlords must vary their leases. In the meantime whilst the Lesser Spotted remains on the endangered species list, my money’s on its survival.