Right to buy: A timely kick-start for housing or a gimmick to be avoided?
The Government is offering generous incentives to tenants, but critics say this could cause more problems than it solves, reports Chiara Cavaglieri
Sunday 18 March 2012
With house construction in the UK at a standstill the Government is pulling out all the stops to get things moving again by bringing in yet another initiative. To give the industry more food for thought after the recent introduction of the NewBuy scheme, designed to help people buy a new home with only a 5 per cent deposit, there is now a revived version of the old right-to-buy scheme, but again there are some serious question marks looming.
Introduced by Margaret Thatcher in the 1980s, the original right-to-buy scheme offered generous discounts of up to 60 per cent to encourage some 2.5 million tenants to buy their own council homes, some of whom have benefited handsomely from rising property prices. However, after successive governments tinkered with it – under John Prescott the discounts were capped at £38,000 – tenants have been steadily losing interest, with the number of sales falling from an annual peak of 84,000 10 years ago to fewer than 3,700 sales last year.
David Cameron is hoping to get the old scheme going again by introducing a new discount cap of £75,000 on right-to-buy property sales; considerably more generous than the £50,000 expected, but critics say even this "rebooted" version could cause more problems than it solves.
"The purpose is opaque at best. Selling off the nation's affordable housing stock at a time when there are two million families on waiting lists must be mad but still the powers-that-be press on," says Henry Pryor, a housing expert and commentator.
Under the refreshed scheme, tenants with five years' residency will be able to buy their home with up to 35 per cent knocked off and an extra 1 per cent discount for each additional year, up to a maximum of £75,000. Tenants in flats will be able to save 50 per cent after five years, after which they save an extra 2 per cent annually. This will be an appealing prospect for aspiring homeowners and at face value, it is difficult to criticise a move that encourages those people who can afford it to leave social housing.
The first hurdle, however, will be preventing social housing from coming under even more pressure in the time lag between existing properties being sold and new homes being built. Even when those new homes are ready, rents are so high that the replacements could add to the problem. Campbell Robb, the chief executive of the housing charity Shelter, says that if the homes sold aren't replaced like for like, and landlords charge up to 80 per cent of market rents, the bulk of this "affordable" housing will still be far beyond the reach of many people.
"At a time when we already have a critical shortage of affordable housing in this country, this amounts to little more than asset-stripping and will ultimately mean fewer genuinely affordable homes for families struggling on low incomes," he says.
Despite the aim that proceeds from every social housing home sold will be used to build a new one, many will remember last time when the Conservatives were criticised for failing to reinvest the money and some people fear we could see the same today.
"It's good to see the prime minister continuing to push housing issues," says Grainia Long, the chief executive of the Chartered Institute of Housing. "However, we have raised concerns over the Government's claim that it can provide one new affordable rent home for each council house sold."
So, could this simply be an attempt to snatch some favourable headlines? Many of the council homes people would want to buy are already owned privately and the ones that are up for grabs tend to be in less desirable areas that tenants are unlikely to want to buy and lenders hate to lend on.
There is no avoiding the fact many ex-local authority homes have a stigma which is going to stifle resale values. Those in blocks or developments, which still have a large percentage of council properties, are often more difficult to sell on and lenders will be even more cautious with these properties. Many potential right-to-buy tenants may decide now is not the time to become a homeowner.
"The pros ought to outweigh the cons, but mortgage lenders won't lend as freely as they did 30 years ago. They will pick and choose the structure of property they feel safest lending against, and the income of a borrower will nowadays have to be significantly superior to what it was," says Ben Thompson, the managing director of Legal & General mortgages.
Daniella Lipszyc, a financial claims lawyer from Ultimate Law, also questions whether council tenants will really benefit from the proposals. She says we must remember that in the past right-to-buy has left a number of owners vulnerable after being mis-sold mortgages following inappropriate advice from brokers, lenders and solicitors who were more concerned with commissions than due diligence. "The scheme had problems with valuations to start with – no one had a true idea of the property's value because it was the first time it had been bought and they had nothing else to gauge it against," she says.
When the market took a nosedive, some who exercised their right to buy found they would have been far better off as tenants. Right-to-buy mortgage holders are three times more likely to be repossessed, says Shelter, so rigorous affordability checks are crucial if we are going to prevent tenants from diving in without truly being able to afford to buy their home. Those buying flats will probably have to factor in a "service charge" towards the upkeep of the whole building, which could mean an annual bill of several thousands of pounds.
Ms Lipszyc has her doubts that the scheme will work because even for tenants confident they can afford to buy, the mortgage market is a different prospect now.
"An improved discount is all very well, but they can't force lenders to lend. This is actually a better time to buy because the market is so poor and tenants are less likely to end up in negative equity as they did five or six years ago. The irony is that they won't be able to find any lenders willing to lend them the money."
Expert view: Henry Pryor, housing market commentator
"Like FirstBuy and the NewBuy scheme it is far from clear why this initiative should bring benefits either to tenants or to the local authority selling the property and while some people will make money having bought their rented property, many will look back as the previous generation who bought in the Eighties and wonder if it really was worth the effort."
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