First Aid

The political parties are vying for the FTB vote in next year’s election.

We are all turning our thoughts to 2005 – a year which is set to see a general election.

The smart money is calling an election for May 5 and personal financial issues are likely to be near the top of the agenda.

It is becoming increasingly clear that homeownership will be a key issue at the next election and is perhaps more important than at any time since 1979.

With house prices at historically high levels, younger people are struggling to make it on the first rung of the property ladder and parents are finding they increasingly need to have to provide not just for increased student fees but also for support towards their offspring’s first home.

The two main opposition parties have already begun extensive work on formulating their response to these conditions, with one eye on their future manifestoes. They have so far responded with the Right to Own (Conservatives) and the Right to Invest (Liberal Democrats). The Labour manifesto team, led by Alan Milburn, is looking to include support for first-time buyers in the party man- ifesto but the debate on its content still needs to be had with the Chancellor.

The Government’s policies so far have been focused on housing supply and key workers rather than first-time buyers. The pre-election period presents an excellent opportunity for the industry to engage with the main parties on their future housing policy at the time of formulation.

There is no shortage of information on the state of the housing market and the picture it paints for FTBs is not encouraging. In 2002 FTBs accounted for 38 per cent of new purchases compared with 48 per cent in 1998. According to research compiled for Roof magazine, the number of FTBs in the market has collapsed from 569,000 in 2001 to 359,000 last year.

By 2003, the average cost of a home for someone taking their first step on the property ladder had soared to 118,811 while average household incomes had grown to 3,462 a month, meaning payments on an 85 per cent mortgage took up 16.7 per cent of monthly pay – a 33 per cent jump.

Research from The Mar-ketPlace shows that a quarter of FTBs take four to six years to save for their first property while 16 per cent take seven years or more. The Council of Mortgage Lenders says the average property bought by a FTB costs nearly 94,000. Only 21 per cent of prospective buyers have savings of between 6,000 and 10,999 while 15 per cent have no money saved at all.

The Treasury-commissioned Barker review recommended that in addition to the 125,000 new homes completed every year, an extra 120,000 new homes should be built to reduce the increase in house prices to a rate of 1.1 per cent per year.

In 1999, the Government introduced the Homebuy scheme with the stated objective of releasing social housing for re-letting. Through this scheme, the purchaser buys an approved property that is in part funded by an interest-free equity loan provided through a housing association. However, between 2002-03, the Housing Corporation funded only 1,024 Homebuy purchases.

Then there are shared-ownership schemes, where the purchaser buys a share of the freehold/leasehold, typically 50 per cent, from a housing association and pays a mixture of mortgage payments and subsidised rent. Through this scheme, 3,085 properties were sold to tenants in 2002-3.

The Government has been more successful with its Starter Home Initiative, which aims to supply affordable homes to key workers in the South-east. Over the three years between 2001-2004, this has helped 10,000 key workers buy their first home through the use of equity loans of up to 50,000.

But, with all these policies combined, the Government still has to turn down around 50,000 applications a year from FTBs. These figures also do not account for a typical FTB who is neither a key worker nor considers themselves poor enough to justify using a housing association.

Labour is considering plans for interest-free loans to enable council and housing association tenants to secure deposits on their first private sector properties. The scheme, being promoted by former Cabinet minister Stephen Byers, could provide loans of up to 38,000 in London and the South-east, tapering down elsewhere.

The Chancellor did not make any specific commitments to helping FTBs in the pre-Budget statement but it is encouraging that they were mentioned in a document of such importance.

The Conservatives have already attacked the Labour Government for not updating the stamp duty brackets. Fiscal drag, caused by the upsurge in house prices, has meant that most FTB purchases are now subject to 1 per cent stamp duty.

The Tories are consulting a wide number of bodies on their tax policy but, given how vocal they have been in attacking the lack of movement on stamp duty issue, it is now likely that they will make some future pledge.

Under the banner of Right to Own, the Conservatives have proposed they would:Provide more money for shared-equity schemes – an additional 12,500 homes a year.Extend the right to buy to over a million housing association tenants;All social tenants to be given a right to shared ownership whereby tenants can build up a stake of equity in inverse proportion to the subsidy they receive on their rentThe Liberal Democrats have called their main policy the Right to Invest. It is essentially a development of shared-equity schemes. Local authorities and social landlords would offer investment contracts with tenants able to invest relatively small sums to buy notional shares in their rented homes. If the tenant wanted to move and buy a different home, they would be able to realise their investment, which would be deemed to have increased in relation to the rise in prices in the wider housing market.

The LibDems are also developing a policy on creating,in certain areas, an intermediate housing market. In certain newbuild areas – the newbuild being provided by ind- ividuals and building companies for a profit – the council takes a 1 per cent stake, or “golden share” in the property which prevents it being sold on the open market.

Once a local person has bought this property at an affordable price these properties can only then be sold to people with local needs.

On the supply side, they intend to reverse the present situation where newbuild on green field sites is subject to no VAT and brown field regeneration of property is charged full VAT. They also intend to give local authorities further powers to make use of empty homes.

So all three parties are likely to focus on the housing market and first-time buyers in the coming campaign. First-time buyers are a key part of the economy and need encouragement.

Iain Anderson is director and chief corporate counsel at Cicero Consulting


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