affordablehousingcomment Devil in the detail
And for poorer families desperate for affordable housing, George Osborne
delivered Beelzebub’s Budget. SIMON GRAHAM reports.
T
he government’s Budget housing package had little to do with helping people who need support to get a decent home and everything to do with a desperate attempt to boost economic growth. Of greater relevance to the housing market is that every household in the country will be worse off overall as a result of the Budget and austerity will stretch yet further into the future. Those in the upper middle income deciles saw their household incomes cut least; those at the upper and lower ends of the spectrum fared worst. The Office for Budget Responsibility estimated that the housing measures would make no discernible difference to economic growth.
The already fairly loose targeting of the FirstBuy equity loan scheme became the virtually non- existent targeting of Help to Buy: equity loan, with household income criteria jettisoned, no special treatment for first-time buyers, and the value of eligible homes now sufficient to buy a large house in most parts of England and a good sized property even in better areas of London. The only semblance of targeting is that buyers should have no more than a 20% deposit and the property bought must be new.
The chief beneficiaries will be those least impacted by the Coalition’s austerity measures anyway. Young couples whose parents had already offered to help them buy will be grateful to the government for bringing forward their purchases. Those struggling to get on the ladder under their own steam may find themselves further down the queue as a wave of more ‘mortgage lender friendly’ applicants appear on the scene. It may be shared equity, but not as originally envisaged. The boost to housebuilding at the margins will not be enough to make a difference either to economic growth or the overall shortage of housing. The Help to Buy mortgage guarantee makes even less pretence to help those who could not otherwise buy. As well as existing homeowners being eligible, people will be able to use it to re- mortgage and it could even support second home purchases – a bizarre outcome if the government is serious in its stated objective of tackling long- term problems in the housing market. A potential boost of £130bn in mortgage lending over three years is substantial. In 2012
gross lending was £144bn, so the new package could represent lending growth of around a third and have genuine impact.
The big question is will it happen, and, if it does, who benefits? The outline model for the scheme published with the Budget gave every appearance of being a first negotiating position. The Council of Mortgage Lenders response was notably cool. Understandably so. The government wants lenders to pay a commercial fee for each mortgage guaranteed, at a level which makes the scheme self-financing. Effectively, lenders will compensate government for the cost of capital in providing guarantees, scheme administration costs and any expected losses. In addition, lenders will take the first 5% of any loss, as a way of discouraging poor quality loans.
Over coming months lenders will be aiming to water down these terms to make them more commercially attractive. At the moment it is hard to see what they gain from joining the scheme. The government has been here before with HomeBuy Direct, where negotiations to get lenders involved were long and hard and the final terms for borrowers were not great. Consequently, the scheme took longer to get going than it should have done. In the current economic circumstances, speed of impact is crucial for the government.
means significant new borrowing for any association wanting to bid under the programme. For the largest housing associations the reduction in interest rates the guarantee might bring is limited because of their already substantial power in the markets.
High borrowing, low grant and marginal improvements in loan rates doesn’t add up to an attractive package, particularly when most associations are having a tough time meeting the commitments they made under the main Affordable Homes Programme. The ‘affordable’ rents tenants will need to pay are also higher than many associations want to charge people struggling on low incomes. Sadly, the vastly increased money available under the Build to Rent fund looks more interesting to housing associations. Quite simply, building homes and charging market rents now seems less risky than building affordable homes, because of the relative terms on offer. Yet private renting is not what housing associations were set up to do – at least not at the expense of housing people on low incomes.
If ministers carry on down this path, the building of affordable homes will dribble away, demand for
Housing associations are also lukewarm about the doubling of the affordable homes guarantee programme to £450m
Assuming it does happen, a hefty boost to lending could pump up house prices. With incomes stagnating that will only serve to exclude even more families from getting on the ladder. Instead of solving a problem, the government will have perpetuated and exacerbated one. Housing associations are also lukewarm about the doubling of the affordable homes guarantee programme to £450m. Again, the terms make all the difference. The paltry level of grant available
already expensive private rented homes will grow further and the government will find itself paying out huge amounts of Housing Benefit to house more poorer people in the private sector, reinforcing the current unfortunate trend. This goes against everything the government says it wants to achieve. The Coalition’s housing policy is a self-defeating mess. Purporting to make things better, the Budget has only made it worse. sh
showhouseMay 2013 | 103
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