View more on these topics

Home makers

With a shortage of available housing and spiralling prices putting buying a home beyond the reach of many, the Government intends to act to provide some much needed assistance in the market. But are these measures enough, asks Will Henley

The Government has placed housing at the top of its agenda for the next Parliamentary year. Last month saw the launch of a Green Paper, Homes for the Future, by housing minister Yvette Cooper and outlined the Government’s plan to create sustainable, affordable homes for the future.

Among the headline figures were a £3bn rise in funding to deliver three million more homes by 2020 and a new shared-ownership scheme.

Speaking at the launch, Cooper said: “The housing shortage means first-time buyers and young families are finding it increasingly hard to get their first step onto the housing ladder. Unless we act now, by 2026, first-time buyers will find average house prices are 10 times their salary. That could lead to real social inequality and injustice.”

Despite these words, analysts are unsure if the proposals will provide effective and immediate relief for first-time buyers.

Continued economic growth, inward migration, interest rates and employment growth are all continuing to drive demand, says Hometrack director of research Richard Donnell. The result is that demand is continually outstripping supply.

Donnell says: “New housing continues to add just about 1 per cent of supply a year. The real challenge of joined-up government is to increase supply at the right time.”

Donnell is complimentary about the Green Paper but he warns that it will not provide a panacea for the ailments of first-time buyers.

He says: “If I had a kid who was 18, I would not hold out a huge amount of hope for them.”

Chartered Institute of Housing deputy chief executive Sarah Webb says the past 10 years has seen a consistent shortfall in the supply of new housing. The pressures facing first-time buyers are no no longer confined to property hotspots but are now felt countrywide.

Webb says: “Even people with two satisfactory incomes are now struggling. We now face a bit of a crisis.”

The Green Paper says 25,000 shared ownership and shared equity homes a year will be funded through the Housing Corporation and English Partnerships. But many of the paper’s measures are aimed at key workers and social housing rather than first-time buyers.

This will provide some assistance for first-time buyers. As Webb says: “If you take people who can’t access rented housing now out of the equation, then they won’t be competing with first-time buyers.”

Although this may cool demand a little, it will do very little to help the big numbers of people for whom buying their own home is already out of their reach.

The Government is trying to address this issue by revamping the Open Market HomeBuy shared equity scheme. In addition to the current scheme, the Government is proposing a further option, where buyers with a combined income of less than £60,000 will be able to borrow up to 82.5 per cent of a property’s value and the Government will retain the remaining 17.5 per cent equity. Under this scheme, borrowers would be able to use any mortgage lender.

John Charcol senior technical director Ray Boulger says: “They will have the benefit of being able to choose a cheaper mortgage from a wider range of products. It will be a big plus for those who get on the scheme.”

However, the Green Paper commits no new funding to this scheme and it will only be available to the small number of key workers and those on council waiting lists who qualify for the existing scheme.

Boulger says: “It will only be able to help a very small proportion of first-time buyers. You would not really expect anything different from this Government. Announcing the good news but not the caveat has been something we have got used to from Gordon Brown.”

Donnell agrees with the sentiment of the paper but says the key test will be in the delivery and the economics of land.

He says: “The Government has to ensure that there is housing in the right places. It is no use building in places where no one wants to live. New housing developments need to be located in the south of England, where the pressures are the most intense.”

But despite Green Paper commitments to offer public sector land for development, Donnell cautions against optimism about the enthusiasm of the public sector to provide it at impressive discounts.

He says: “To encourage development, you need to charge below market price for land. But at the moment, best value rules mean that government bodies must sell land at full market value.

“Given that it takes two years to get planning permission and two years to build anything, that land could be up to four years away from delivering any units.”

One significant pressure on first-time buyers is the buy-to-let market. In the short term, changes here are more likely to be felt by first-time buyers than other positive long-term measures, believes Univ-ersity of York Centre for Housing Policy professor Steve Wilcox.

He says: “About an eighth of transactions last year were buy to let. If these investors stop buying, that would take an eighth of the market out and have a major impact on first-time buyers.”

But Webb says the Green Paper fails to tackle this issue. “There needs to be an end to the tax incentives that effectively subsidise the buy-to-let market. These investors are competing with first-time buyers for scarce property.”

The Green Paper also fails to deal with the issue of stamp duty, says Helen Adams, managing director of first-time buyer advice service FirstRungNow.

While she welcomes prior announcements to change the threshold so that a bigger number of first-time buyers are exempt, many first-time buyers will still have to pay the tax.

She says: “It is a big money earner for the Government and there is no intervention on that front to help first-time buyers at all. They have to pay as much stamp duty as a buy-to-let investor.”

According to Adams, the overall effect of the Green Paper “is not going to be that dramatic”.

She says: “There are just too many people chasing too few properties and that will continue to be so for a long time.”

Wilcox says simply setting targets to increase the rate of housebuilding will not in itself change the picture in the short run.

He says: “It will be 2016 before we catch up with the rate of household growth.

“If it works, the Green Paper will be good news for first-time buyers in 10 to 20 years’ time. But at the moment, we are lagging behind.”

Recommended

Waiting for wave of wrap consolidation

The growing number of wraps will only convince more advisers to delay choosing a single provider and wait for consolidation in the market, according to JP Morgan Asset Management.JPM’s survey of the adviser market found that half see wrap it as a factor crucial to their future success and 49 per cent also say they […]

Broker Talkback

Do you agree with Aifa that the IFA model is not broken? Yes 100%“I think it might be bent but not broken”.Su Page, Select Financial Management Limited Yes “It allows the general public access to truly independent advice, which they would not receive from a bank.”Simon Bosson, Amethyst Financial ManagementYes “The sector is thriving, thanks […]

Scale of current credit fears last seen after 9/11, says F&C

Volatility in the financial markets is at its greatest level since September 2001 with the market trading on fear, says F&C.F&C head of asset allocation Paul Niven says the market volatility that has followed the sub-prime lending “carnage” in America has been confirmed by the widespread losses for investors, particularly of hedge funds.He says current […]

One rep beyond

Scottish Equitable faces a £700,000 payout after a rep was deemed to have wrongly given advice in a client meeting. John Lappin examines the implications for the adviser-provider relationship

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com