Innovative ways to “Kick-Start” the market

As the festive period draws to a close, the majority of us will remember it more due to the dull headache, caused not by too much champagne and whisky, but by the flu, which has caught more out than expected this year.

Hopefully you are over the worst of your cold, but is the housing market?

Will we see a fresh approach to lending in 2009?

There will not be a return to 2007 levels of lending for many years, but we must think differently and change our ways if the property market is to keep going.

The Government is now paying for the biggest redundancy protection policy in my memory. This may slow the rate of repossessions in the market, thus keeping house prices a little more stable.

In addition, there are new ways to buy homes, with mortgages for equity share schemes now commonly available, and with mainstream lenders. If first time buyers are able to buy homes again, prices will quickly stop falling and the market will get back to it’s knees.

Equity share schemes work well for the vendor and the purchaser in this type of market. They allow the vendor to sell and the purchaser to buy. The vendor, who could be a builder or simply a normal seller, allows an interest-free loan for a percentage of the property’s value for say 5 years. This allows the purchaser, who may not otherwise be able to buy a property, to obtain a mortgage and buy a home, with little or no deposit.

After the first 5 years, the buyer can arrange to repay the loan in full or renegotiate the loan on different terms with the vendor.

A working example. A couple earning £20,000 between them are considering buying. They find a property worth £100,000. Once they see their financial adviser he informs them that they cannot buy a property without a deposit, but does talk to them about shared equity schemes. They then approach their estate agent who discusses this option with the vendor.

The vendor does not want to wait until the market recovers to sell, and is happy to agree the asking price for the property, giving an interest-free loan of 25% of the property’s value for the first 5 years. The buyer then arranges a mortgage for £75,000 which allows them to buy the property. In 5 years they will have to repay the loan or renegotiate the terms of the loan with the vendor.

I believe that innovations such as the above shared equity scheme can “kick-start” the housing market in 2009. My opinion is that the market must evolve to allow a recovery as soon as possible. You may see further innovation this year with incentives for property landlords or additional help to first time buyers.

If you are considering buying and would like to discuss your options, you should contact an Independent Financial Adviser. The IFA will discuss your options with you and recommend the most appropriate course of action.

Kieron Bassett Financial Services have two IFAs. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.

Adam Elkin CertPFS
9 January 2009