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A government-commissioned review of private-sector shared-equity housing schemes has concluded that the market has ground to a halt in the face of the credit crunch.

The Pomeroy Review of Prospects for Private Sector Shared Equity was commissioned by the Department for Communities and Local Government to assess the development of the shared-equity market and identify barriers to its advancement.

It has reported that the private sector was starting to show a 鈥渟ignificant amount of interest鈥� in developing shared-equity schemes before the credit crisis began but most have now been put on hold.

However, the review found that demand for shared-equity products had been clearly identified and that financial institutions were showing an appetite to invest, concluding that 鈥渢here is a reasonable prospect that attempts to establish private shared equity could be renewed once more favourable market conditions return鈥�.

The review found, however, that there had been only one truly unsubsidised private-sector product, the Flexishare scheme run by Morgan Stanley subsidiary Advantage. This has recently been withdrawn.

Aside from the credit crisis, the main constraint on the development of private shared-equity schemes was found to be the difficulty of finding investors willing to take the exposure to house price risk inherent in the shared-equity model.

The reasons for this reluctance include: uncertainty about future house price movements coupled with the absence of a hedging market to offset risk; lack of knowledge about likely cash flows, particularly in relation to 鈥渟taircasing鈥� of loans; and simple wariness about a new financial model.

The report concluded that there is no major measure that government could take to radically transform the situation but that the market can be expected to develop in its own time once the economic outlook becomes more positive.