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.
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