Mortgage lending for CLH home ownership schemes

This section of the Toolkit looks at mortgage lending for CLH projects that have an element of home ownership within them.

  • Community-led housing projects can make use of a variety of low cost home ownership products, including shared ownership, shared equity and discounted market value
  • As with housing associations and other developers of affordable housing, CLH groups always need to be mindful of lender appetite and concerns to ensure residents have a reasonable degree of consumer choice
  • Restrictions on who can buy the homes - for example criteria based on local connection, or a community of interest - need to be balanced with a cascading policy, to reassure lenders that there will be a market for the homes 
  • There have been cases of shared ownership homes that don't sell, because there isn't enough demand in the specified market. Groups may also need to include a "mortgagee in possession" clause, giving lenders the right to sell homes on the open market as a last resort, particularly if selling a product with a lot of unusual restrictions
  • There is a fairly competitive market of lenders for shared ownership homes, particularly where groups use the standard Homes England lease. Some groups cap the percentage that residents can staircase up to, to preserve affordability. It is best to adapt the Homes England Designated Protected Area lease in such cases
  • Shared equity also offers a reasonable range of lenders. Equity loans are preferred by lenders, and offer a better deal to consumers, but don't provide a means to preserve affordability in perpetuity as with shared equity
  • Discounted market values, preserved for resales in the lease and/or covenant, are a mixed bag. The terms should be clearly expressed in the lease and/or covenant and any marketing materials, to ensure solicitors, lenders and underwriters see and understand them. When the price is calculated as a percentage of the open market value the homes will be accepted by many lenders, including several of the big banks and building societies
  • Some groups have also sought to link discounted values to local median incomes, setting prices at levels that average households can afford. These ensure genuine affordability, but can also severely restrict consumer choice - often to only one or two lenders
  • In general, it is best to advise groups to approach lenders when designing a project to discuss the home ownership products being considered. Smaller banks and building societies are more likely to be flexible. It is also best to opt for a standardised model, so that lenders will be more likely to understand it

Relevant Resources

Community Land Trusts - Mortgage Funding Guidelines


Last updated in March 2020