Will £400m cash injection stop us from becoming a nation of renters?
Critics say plans to kick-start the housing market will do little to improve home owner numbers
Sunday 27 November 2011
In a move to stimulate a comatose housing market in which, in David Cameron's words "lenders won't lend, builders can't build and buyers can't buy", the Government is to inject £400m into house-building and to free up of mortgage finance for first-time buyers (FTBs).
The plans have had a lukewarm response at best, with critics arguing that it won't do enough to kick-start the market and prevent us from becoming a nation of renters.
"The only winners in this new initiative are the insurance industry, mortgage lenders, estate agents and sellers," says Angus Hanton, the co-founder of think tank Intergenerational Foundation. "Younger generations will still have to prop up an overpriced market where prices should be falling, an overpriced mortgage industry where charges should be falling while underwriting the debt. The fact remains the older generation is over-consuming housing."
Aspiring homeowners may have been pleased to read the headline measure of the Government's plans to make high loan-to-value (LTV) mortgages easier to secure. The mortgage indemnity scheme will enable bigger mortgage lenders to offer FTBs 95 per cent loans on new-builds, which should help about 100,000 prospective buyers. The Home Builders Federation and the Council of Mortgage Lenders will head the scheme, but the Government will be underwriting part of the risk so that lenders can recover their losses if the homes are sold for less than the outstanding mortgage.
A £400m Get Britain Building fund will also help house-builders to restart construction and complete the 16,000 new homes on sites that have been shut down.
However, new figures that show that construction on new homes fell by 7 per cent to 96,070 in the 12 months to September 2011 – way short of the 160,000 homes required to keep pace with family breakdowns, immigration and the overall population increase.
Also, if the mortgage support is available only for new-builds, it could be argued that with no onward chains an increase in new-build purchases won't be enough to stimulate the market as a whole.
For FTBs, new-builds carry risks. The appeal is that these properties are typically low maintenance, energy efficient and modern, but they also have a reputation for small rooms and flaws such as incomplete tiling, doors that don't close properly and other imperfect fixtures and fittings. Anyone buying off-plan can never know exactly what they're paying for.
New-builds also tend to carry a premium which can put mortgage lenders off and increase the risk of negative equity. And, even if lenders are on board, there is no reason to assume that they will be persuaded to back this new housing strategy.
"The schemes outlined in the plan are elective, so lenders and house-builders are not obligated to participate if they don't want to," says Nicholas Leeming, the business development director at Zoopla.co.uk. "It's possible that lenders and house-builders will cherry-pick the elements that suit them best rather than the people the strategy is aimed at helping."
There are other government reforms on the horizon, including moves to make more public sector land available to build up to 100,000 new homes by 2015 and to extend right-to-buy discounts so that social housing tenants can buy their properties for as little as half the market value. But housing charity Shelter says that these plans still do not tackle many of the major problems stifling the UK housing market, namely inflated house prices.
Strong demand from buy-to-let investors and foreign money being piled into the top end of the market are keeping house prices beyond the reach of most FTBs. The private rental market is under enormous strain with more families forced to rent for longer. With demand outstripping supply, rents can go only one way, but this housing strategy offers no help to tenants who face soaring rents and dodgy landlords.
"While it is good to see this issue being recognised, what has been announced provides no tangible reassurance for all those struggling at the hands of rogue landlords," says Campbell Robb, Shelter's chief executive.
In England, the number of households renting in the private sector has risen by one million in five years to 3.4 million. This is set to rise steeply, according to the National Housing Federation (NHF). The NHF forecasts that the number of people owning a home in England will drop from its peak of 72.5 per cent in 2001 to 63.8 per cent by 2021, the lowest level since the mid-1980s.
It also predicts that London will become a city of renters over the next decade with the number of owner-occupiers falling from 51.6 per cent in 2010 to 44 per cent by 2021. Moreover, a shortage of homes – in 2010 only 105,000 homes were built in England, the lowest level since the 1920s – will mean that average private sector rents are predicted to jump by 19.8 per cent over the next five years.
Fewer homeowners, expensive rents and social housing waiting lists at a record high of about 4.5 million do not paint a happy picture. Buy-to-let mortgages are once again plentiful – more so than FTB products – while the Bank of England said last week that it wanted to see more people renting and move away from the Thatcherite property-owning model of the 1980s. Stronger tenancy rights seem to be an obvious reward for those priced out of the market and forced to rent, but this new housing strategy doesn't even touch upon this.
Shelter has even raised its concerns that the Government's plans will encourage a return to the sub-prime mortgages which led to the global economic crisis in the first place. "Every day our advisers help struggling homeowners pick up the pieces after being lent money they had no hope of paying back in the first place. We are really concerned that unless rigorous affordability checks are in place, this could be the start of a return to the irresponsible lending that led to so many losing their homes," says Mr Robb.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Al Pacino on suffering from depression: 'It can last and it's terrifying'
- 2 Half of young women unable to ‘locate vagina’ and 65% find it difficult to say the word
- 3 Saudis risk new Muslim division with proposal to move Mohamed’s tomb
- 4 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
- 5 Mexican woman becomes world’s 'oldest person' at 127
Rotherham child sex abuse scandal: Labour Home Office to be probed over what Tony Blair's government knew - and when
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Ashya King: Parents of five-year-old boy refused permission to visit him in hospital and denied bail at Spanish court
With Douglas Carswell joining Ukip, my party has taken another giant step forward
When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
Ashya King: 'Cruel NHS has not given us the treatment we need', says father of five-year-old with brain tumour who fled to Spain
iJobs Money & Business
£600 - £800 per day: Harrington Starr: Derivatives Risk Commodities Business A...
£600 - £800 per day: Harrington Starr: Power & Gas Business Analyst/Subject Ma...
£600 - £900 per day: Harrington Starr: Infrastructure Lead, (Trading infrastru...
£35000 - £38000 per annum + benefits: Ashdown Group: A highly successful, glob...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony