What do the government’s new housing plans mean for buyers, sellers, renters and the housing market? Read on to find out.
What has the government announced?
The Government announced several measures designed to help more people get onto the housing ladder. The three major planks are:
1. More 95 per cent mortgage
The Government wants to make it easier for those with small deposits to buy a property, so part of the plan is to ensure that more mortgages are available for those who can save only five per cent of a property’s value as a deposit. A mortgage review is underway that will report in the Autumn.
2. An extension to Right to Buy
Currently it is possible for those who live in council properties to buy the accommodation they live in. Boris Johnson wants to extend this to those who rent from housing associations using a new scheme. They could be able to buy properties at a 70 per cent discount to market value depending on how long they’ve lived in the property.
The current Right to Buy scheme allows those who have been public sector tenants for over three years to buy properties at a discount of 50 per cent to market value for flats or 35 per cent for homes. The discount increases two per cent a year thereafter with a cap of 70 per cent of the market value, though there is a monetary cap on this too.
3. Benefits changes
Instead of housing benefits only being used to pay rent, the government wants it to be possible for claimants to use this money towards buying a home and paying a mortgage.
Essentially this means that, when a mortgage broker looks at your income to decide what you can afford, you’ll be able to include benefits in this income, making it easier to have a mortgage approved.
The government suggested that who use a Lifetime ISA or Help to Buy ISA to save for a deposit will no longer find that they receive lower Universal Credit payments because of their savings, stopping a major disincentive for saving towards a home.
Why does the Government want to do this?
The government says that home ownership has become unaffordable , but that those who are currently renting their homes could afford to buy properties under different circumstances.
In a speech about the new policy, Boris Johnson said that money from Housing Benefit is going straight into landlords’ pockets, and he wants it to pay for homeownership instead.
He says that those in Housing Association properties should have the same rights as those in council homes, and that there are many more (2.5m against 1.6m) in these properties.
How many people will be able to use the scheme?
The government’s figures suggest that anyone who is in a Housing Authority property might be able to buy a home if the circumstances are right in other ways.
However, experts suggest that the new rules allowing those on benefits to use those payments to pay mortgage rather than rent may not have a huge impact.
Lindsay Judge, research director at thinktank The Resolution Foundation, says that more than four-in-five families on means-tested benefits have no savings at all, and that the high cost of living will make it hard to save for a deposit.
“In reality, those most likely to benefit will be receiving support from elsewhere – be that via Right to Buy or financial support from family members,” she says2.
The government has said that the scheme will be ‘capped’ and ‘affordable’, but with no extra money to fund it, it is not clear how many people will be able to take advantage.
When will we have the details?
As with any new schemes, the devil with the new housing plan will be in the detail, which we won’t see for a while.
The government promises more on the mortgage situation ‘in autumn’, but it isn’t yet clear when the housing association scheme will move on from being a series of pilot projects. Details will need to be agreed with housing associations first.
It is not yet clear when the changes affecting different types of ISAs could be put in place either.
What difference will it make to the housing market?
It is hard to say. Many people predict that the housing market is set to crash3, due to economic uncertainty and the rising cost of living. However, if more people are able to get on the property ladder it may push prices up because of a rise in demand.
On the other hand, the government has pledged that it will replace social housing on a one-for-one basis if houses are bought under Right to Buy which may mean that there is more stock in the system, depressing house prices.
Ultimately, there is far more we need to know before we can assess what effect the new policy will have on our property market. If the scheme is restrictive, it may have little effect. If it is widely applicable, the ramifications could be huge.
1 https://www.gov.uk/government/news/right-to-buy-extension-to-make-home-ownership-possible-for-millions-more-people
2
https://www.resolutionfoundation.org/press-releases/new-housing-support-scheme-will-help-a-limited-number-onto-the-housing-ladder-but-addressing-its-design-flaws-could-end-up-with-significant-costs-to-the-exchequer/
3 https://www.thisismoney.co.uk/money/mortgageshome/article-10892861/Is-housing-bubble-set-burst-Prices-mortgage-approvals-slow.html