A proposed new Right to Buy scheme for social housing was announced by the Prime Minister recently. Here we’ll look at the scheme and what it might mean for the property market.
The first so-called Right to Buy scheme was introduced by the then Government in the 1980s. Ever since tenants in council homes have been eligible to buy their homes at a discounted price of up to 70% off market value, dependent on how long they have lived there.
Housing association tenants have not had the equivalent rights. Rights to buy these properties have been very limited and only at very small discounts. The Prime Minister has announced that around 2.5 million housing association tenants will now be given the same right to buy them outright.
Also, in order to turn more members of what it calls ‘Generation Rent’ into ‘Generation Buy’ the Government is launching an independent review of access to mortgage finance for first time buyers. The aim is to make it easier for this group by widening access to low cost, low deposit finance such as 95% mortgages.
The Prime Minister also pledged to, as he phrased it, turn ‘benefits to bricks’. This will involve changing welfare rules so that the 1.5 million people who are in work but also on housing benefit will be given the choice to use their benefit towards a mortgage.
The Government will also change the rules to incentivise those who are claiming Universal Credit to save for a deposit.
So let’s look at a few aspects of the proposals in more detail:
* Will tenants and/or people on benefits feel at all confident about taking on such major commitments –both a mortgage and a house purchase?
Is there a risk that housing association tenants and/or benefits claimants will be encouraged to buy just because the Government tells them it is a good idea, when actually it is a terrible idea for them?
* What view will lenders take?
Lenders normally grant mortgages based on multiples of income and affordability. They assume that a borrower’s income will most likely rise over the term of the mortgage and make the repayments easier to meet. What view will they take on affordability and the future eligibility for and levels of benefits?
* What impact will the new scheme have on the availability of housing association homes?
The housing shortage could be worsened, especially for those who cannot or do not want to buy. As with the original Right to Buy scheme housing association homes in the most attractive and expensive locations might be bought in the largest numbers. It could leave some areas with virtually no council or social housing and perhaps very little to rent either. What impact will that have on those areas and people who need a rented home there?
* Will the sold-off homes be replaced?
Levelling Up Secretary Michael Gove has said that (unlike the original Right to Buy scheme) ‘each and every property sold’ will be replaced with a good-quality social home. But how will this work?
It could take years to replace each home sold, if it happens at all. There is the question of finding the land for the replacement homes, going through planning and of course the money to do it. Building costs are rising fast at the moment so replacement is likely to be an expensive business.
* Will the extra money which is injected into the housing market by way of benefits and widening access to mortgages push up house prices?
This could actually make houses even more unaffordable to those the proposals are intended to help.
The announcement said that ‘soaring house prices, stringent mortgage lending restrictions and high deposit requirements are hampering the ambition of many young people who want to own their own home. Over 50% of today’s renters could afford the monthly cost of a mortgage but various constraints mean only 6% could immediately access a typical first-time buyer mortgage.’ Yet these very same soaring house prices have already most likely been exacerbated by Government schemes that have put more money into the housing market.
It's important to point out that these proposals were only announced as part of a speech. There are no firm proposals for a law as yet and, as is sometimes the case, there might never be. It also should be pointed out that any new scheme is only likely to apply in England. So it is very much a matter of watch this space to see what might emerge in the months ahead.
Even at this early stage it probably wouldn’t be unfair to draw a few parallels with the original Right to Buy scheme in the 1980s however. This proved very appealing with many voters and performed very well for the Government of the day who introduced it. However the supply of affordable public housing was badly affected and it was most likely a significant contributor to the housing crisis we have today.