Finance

Godsend or gimmick?

The Government has promised yet more reforms to make it easier to get on the housing ladder. Kay Hill looks at the latest proposals and the industry reaction

Before his resignation just as we went to press, Prime Minister Boris Johnson was once

again talking about the housing market. His speech, delivered in Lancashire, came at the end of a week in which he’d narrowly survived a vote of no confidence, so it was important to attempt to convince listeners that it was business as usual.

After a lengthy speech covering everything from stagflation to the price of bananas, the then PM turned to the cost of housing – beginning with some depressing facts and figures, “Just this year alone the price of a home in the UK has soared by an average of 9.8% to an average of £278,000 - £24,000 higher than this time last year. And in 2021, prices rose faster than wages – so that if you’re one of the millions on the outside of the market looking in, for every week and month that goes by, the dream of ownership recedes further into the distance.

“The average age of first time buyers has been rising continuously, the proportion of young people who can afford to buy their own home has been falling. The challenge facing first time buyers today is far greater than anything we have seen before – 20 years ago, in 2002, a home cost an average four and a half times your income. Today that multiple has risen to nine times your income. We have a ludicrous situation whereby plenty of younger people could afford to make monthly payments – they’re earning enough to cover astronomical rent bills – but the everspiralling price of a house or flat has so inflated deposit requirements that saving even just 10 per cent is a wholly unrealistic proposition for them. First time buyers are trying to hit a continually moving target.”

After playing the usual political blame game, “We’re building as fast as we can, and after a sustained decline in homeownership rates under the last Labour government, that rate is now starting to climb thanks in part to our decisive action to support first time buyers and build more homes,” he also made some promises for the future. These are set out below, although with the Government now in a state of turmoil, and ministers changing by the minute, their current value is as uncertain as everything else in the world of politics!

PROMOTE HOUSEBUILDING

According to Johnson, “Michael Gove has been developing plans to work hand in hand with local communities to build more of the right homes in the right places. We are going to put more publicly owned brownfield land to use and seek to unlock

EXPERT COMMENT

The bene ts proposal is a bit left eld and I’m not sure lenders will like it. Using bene ts, especially housing bene ts or Universal Credit, is not ideal to base a mortgage on and even if it is used it is unlikely to boost borrowing eligibility enough to make a big difference. As far as the new Right to Buy scheme is concerned, this may help some but it is a bold claim that every house sold will be replaced by another to ensure social housing does not reduce further. Given the fact that the Government has failed to get close to any housebuilding targets, this seems a big ask. As ever, the devil is in the detail, and the Government has a record of announcing so-called market-changing initiatives only for them to achieve very little. A review of the mortgage market to see if deposits can be reduced borders on farcical. Borrowers can get loans with a 5% deposit already and reducing that further just means that more are at risk of negative equity if things go wrong. The Government would be better to nationalise a housebuilder and build affordable housing in places people want to buy or create new places complete with infrastructure.

Andrew Andrew Montlake, Montlake, MD, mortgage MD, mortgage broker Coreco broker Coreco

small sites that are ideal for the kind of unobtrusive development that communities welcome, with priority for first time buyers and key workers. We are supporting self-build and custom-build homes… and we will sensitively make use of existing planning rights, for example by making it easier to turn disused agricultural buildings into homes for local first time buyers.”

REVIEW OF THE MORTGAGE MARKET

Johnson promised a “comprehensive review of the mortgage market” by the autumn. He explained, “It will look at how we can give our nation of aspiring homeowners better access to low-deposit mortgages, and what our own mortgage industry can learn from counterparts around the world who have all kinds of alternative ways of offering finance, managing risk, and unbolting the door to ownership.” In particular, he announced that he wanted to work with lenders to “recognise the credit worthiness of tenants with a track record of paying their rent on time” as well as making it easier for selfemployed people to get mortgages.

EXTEND THE RIGHT TO BUY

One of the keynotes of the speech was a promise to extend Right to Buy to those in housing association properties – giving them the same rights as council house tenants to purchase their home at a discount. He said, “It will work for tenants, giving millions more the chance to own their home. It will work for taxpayers: responsibly capped at a level that is fully paid for; affordable within our existing spending plans, and with onefor-one replacement of each social housing property sold.”

REFORM LEASEHOLD

Boris maintained that the Government was “dealing with the scourge of unfair leasehold terms, often every bit as onerous as the conditions imposed upon tenants by landlords but applied to those who as homeowners should have far greater control over their homes and their lives”.

He added, “In this Parliament we will supercharge leaseholders’ ability to buy their freehold, helping 4.6 million households genuinely to own their own home with discounts of up to 90% for those trapped with egregious, escalating ground rents… ending the absurd position where first time buyers spend their life savings on flats, only to find themselves being charged hundreds of pounds for painting their own doors or unable even to own a pet dog.”

TURN BENEFITS TO BRICKS

He promised to look at rules on welfare, to allow the 1.5 million working people who are in receipt of housing benefits to be able to put their benefits towards paying a first mortgage instead of only being allowed to spend it on rent. He also promised to look at excluding LISA or Help to Buy ISA savings from Universal Credit eligibility calculations that prevent people with more than £16,000 claiming benefit, “making it easier for hard-working people to put away a little each month until they have enough for a deposit on their first home”.

EARLIER HELP WITH DEBTS

At present, if a mortgage payer loses their job they have to be on Universal Credit for nine months before they can access a loan to help pay the mortgage interest. Johnson said, “To help keep people in a home if they’re unfortunate enough to become unemployed, we’re going to let people access support for paying their mortgage that much earlier than is presently the case.”

The reaction to the speech was generally underwhelming, with shares in housebuilders and banks dropping, and many experts pointing out that even with a 95% mortgages available, families on benefits are more likely to be struggling to heat their homes than saving for a deposit. One commentator, Polly Neate, chief executive of Shelter, calling his plans “baffling, unworkable, and a dangerous gimmick… Hatching reckless plans to extend Right to Buy will put our rapidly shrinking supply of social homes at even greater risk.”

Holly Andrews, MD at KIS Finance, was more enthusiastic, “Any steps to help support young people to escape from the trap of rented accommodation will be positive and the industry needs to be ready to adapt to support the proposed changes.”

EXPERT COMMENT

Boris Johnson tried to persuade the public to move on from the “partygate” scandal by announcing a slew of new housing measures. One of those announcements was a review into the mortgage market, which will report in the autumn. However, the details of what this actually means is yet to be seen. By his own admission, there is a healthy supply of high loan-to-value mortgages available, so what this review will uncover is anyone’s guess. The crux of the matter is that it is not the mortgage industry that needs xing but the housing market and its sky high prices. Part of the reason why house prices are soaring is because there are so few properties out there. Build more stock, and the scramble for properties, which is pushing prices ever higher, will come to a halt. This would in turn help generation rent whose dreams of owning a house are unfortunately just a dream at present. The only tried and tested way of helping people buy their rst home is by sticking to the laws of supply and demand. Simply put, if you build more, desirable, houses, prices come down and people have a ghting chance of getting on the housing ladder.

Karen Noye, Mortgage Expert, Quilter