Housing minister Grant Shapps’ proposal for ‘mates mortgages’ has come under more fire – this time from mortgage lenders.
The Council of Mortgage Lenders effectively said both borrowers and lenders should steer well clear.
In a briefing, the CML said it wasn’t the size of monthly mortgage payments that were the problem for first-time buyers, but the size of the deposit required.
It said: “Although some lenders do offer mortgages to groups of friends wanting to buy together, demand from buyers for this type of loan is limited. There are good reasons why both borrowers and lenders are cautious, given the potential problems associated with mates mortgages.”
The CML said potential problems happened if one of the joint borrowers cannot pay their share of the mortgage, since the other borrower would then be liable for the whole mortgage repayment. Friendships could also break down or one of the borrowers move out.
“Historically, there have been circumstances encouraging a greater take-up of mates mortgages. But when this has occurred, it has also exposed their flaws,” said the CML.
“In 1988, the Government announced that multiple tax relief for home-buyers would end later that year, providing a short-term incentive for people to group together to buy a home. Even then, however, take-up was limited, and the subsequent breakdown of these arrangements led to mortgage payment problems for some buyers, contributing to an increase in cases of possession.
“The reality is that ‘mates mortgages’ have never been a particularly attractive option for borrowers. Our statistics show that between 1983 and 2005 (when we stopped collecting this data) purchases by three or more people accounted for considerably less than 1% of all first-time buyer transactions – totalling no more than a few hundred cases per year.”
It went on: “The case for ‘mates mortgages’ might be clearer if house prices were rising strongly, with owners enjoying the prospect of capital growth and avoiding the possibility that higher prices could make it more difficult to buy in the future.
“But that does not apply in current market conditions, particularly when any modest capital gains have to be shared among a group of buyers.”