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Bank “prejudice” hits low-cost housing

It is feared the banks will turn away the same amount of potential business this year – leaving thousands of first
-time buyers and key workers without the chance to buy their own low-cost home.

The Government, which has poured tens of millions of pounds into the properties, must now ensure that the state-owned and partially state-owned banks take on a greater social responsibility and make lending on shared ownership homes a key priority, the Federation said.

Although demand for shared ownership homes is soaring – as the recession continues and repossessions rise – the banks are being increasingly cautious, with many taking the view that because shared ownership is designed for people from lower income brackets they are more risky than other types of lending.

The Federation said the prejudice of the banks was not borne out by fact – as households purchasing low-cost homes were no more likely to default on their mortgages than others.

The organisation calculates that if the banks started to lend on shared ownership products again there would be up to £1.5billion of business available to them in 2009/10 – with up to £480million required to finance mortgages for the 9000 vacant low cost homes, and £1billion required for mortgages for the 15,000 low cost homes to be built this financial year.

Federation chief executive David Orr said: "The excessive risk-taking of the banking sector, that heralded the downturn, has been replaced by excessive caution.

"Lenders are now reluctant to provide mortgages for shared ownership, because of a prejudiced assumption that its buyers – people on low and moderate incomes – are more likely to default on their mortgages.

"As a result, thousands of lower income households, with a good credit rating, are being denied the opportunity to part-buy decent homes.

"The Government should ensure the banks that have been bailed out with public money, such as Northern Rock, Lloyds TSB, RBS and Bradford and Bingley, take on a social purpose and lend to people on low-to-moderate incomes who can afford to buy shared ownership homes."

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