Shared‐equity mortgages, housing affordability, and homeownership

Abstract

Although the homeownership rate rose from 65 percent in 1995 to 69 percent in 2005, this rise appears difficult to sustain. We argue that the development of new shared-equity mortgages (SEMs) that blur the lines between debt and equity would propel further advances in homeownership. The rationale for these mortgages is that the broad financial markets would value shares in individual housing returns more highly than hard-pressed prospective homeowners do.We describe a new class of SEMs and provide survey evidence that most households would prefer them to interest-only and other currently popular mortgages. Financial simulations confirm the value of the securitized SEMs to investors. We present computations suggesting that an increase in the overall U.S. homeownership rate of between 1% and 1.5% would likely result from the development of SEM markets.

Sharing Equity with Future Generations: An Evaluation of Long-Term Affordable Homeownership Programs in the USA

“…Equity restrictions have little appeal for buyers who can qualify for and afford market-rate mortgages, so by design, the field is targeted to the niche of households that have the capacity and desire to own, but whose financial means are insufficient. But, among households that cannot purchase market-rate homes, this study has found demand for shared equity mortgage products (Caplina et al, 2007). Therefore, the relatively small number of shared equity homes does not appear to reflect a lack of demand for such housing.…”

Participating mortgages and the efficiency of financial intermediation

“…This perspective is also supported by the practitioner literature, which highlights the affordability of higher value property with PM financed loans (see Caplin et al, 2007).…”

Housing, Leverage, and Stability in the Wider Economy

“…The idea of equity type funding of house purchase, which shares risk between owner‐occupiers and outside providers of funding is not a new one. There have been several attempts to develop markets for types of shared equity funding—most notably in Australia, and to a lesser extent in the United Kingdom and the United States (see Caplin et al , , , Shiller , ). But outside equity funding remains a very small part of the financing of house purchases.…”