Morgan Stanley, the US investment bank, is set to launch a product aimed at allowing homeowners to borrow much more money than traditional lenders permit, in exchange for giving up some of the future increase in the value of their houses.
Although there are already similar government-backed products, these have until now been restricted to key workers and low-income families.
The move is likely to be followed by other lenders as banks seek new business without straining lending criteria. But it could fuel further house price inflation as buyers chase properties with ever-deeper pockets. It will also leave more homeowners exposed to falls in house prices.
The launch comes as Yvette Cooper, housing minister, is expected on Monday to call for more private sector lenders to become involved in similar schemes to help people buy homes.
The government is concerned at figures that show about 60,000 new households under the age of 40 are unable to get a foothold on the property ladder, according to the Joseph Rowntree Foundation.
Advantage, the new mortgage wing of the US-based investment bank, is aiming its “Flexishare” product at anyone who cannot borrow enough conventionally to buy the home they want.
The product will breach the convention whereby most banks refuse to lend above more than about four times salary – or three times a couple’s joint salary – on a home. Homeowners would be able to borrow a conventional mortgage and a “residential ownership loan” of up to 35 per cent of the home’s value, at a lower rate. Morgan Stanley would then take a proportion of any rise – or fall – in the price of the home.
As an example, a home bought for £200,000 and sold after doubling in value to £400,000 would provide the lender with up to £70,000 of the capital gains, leaving the homeowner £130,000. If the home halved in value, say to £100,000, the lender loses £35,000 and the homeowner £65,000.
Morgan Stanley is likely to insulate itself from any lending risk by processing the loans through the capital markets, although not necessarily through securitisation.
