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BRIEFING PAPER

Number 03668, 28 December 2017

Extending home ownership: Government initiatives

By Wendy Wilson Hannah Cromarty Antony Seely Cassie Barton

Inside: 1. First time buyers and

affordability 2. Low-cost home ownership

schemes in England 3. Purchase schemes for social

housing tenants 4. Stamp duty reforms 5. London 6. Wales, Scotland and Northern

Ireland 7. Comment on the impact of

home ownership schemes

Number 03668, 14 December 2017 2

Contents Summary 3

1. First time buyers and affordability 5 1.1 Affordability before the credit crunch 5 1.2 The credit crunch and beyond 6

2. Low-cost home ownership schemes in England 13 Background 13

2.1 Equity loan schemes 14 Help to Buy: equity loan 15 Help to Buy London 16

2.2 Shared ownership 16 2.3 Rent to Buy 18 2.4 NewBuy Guarantee 19 2.5 Help to Buy: mortgage guarantee scheme (now closed) 20 2.6 Help to Buy: ISA 22 2.7 The lifetime ISA 22 2.8 Starter homes 23 2.9 Failed housing transactions 24

3. Purchase schemes for social housing tenants 25 3.1 Right to Buy and Right to Acquire 25 3.2 An extended Right to Buy 25 3.3 Cash incentive schemes 26 3.4 Social HomeBuy 27

4. Stamp duty reforms 28 4.3 Autumn Budget 2017: relief for first time buyers 35

5. London 42

6. Wales, Scotland and Northern Ireland 43

7. Comment on the impact of home ownership schemes 45

Contributing authors Antony Seely, Stamp Duty reforms, Section 4 Cassie Barton, statistics, Section 1

Cover page image copyright: Richard Cracknell

3 Commons Library Briefing, 14 December 2017

Summary Home ownership rates in England have been falling since 2003 despite the fact that it remains the tenure of choice for a majority of people. The 2014 British Social Attitudes survey found that, given a free choice, 86% would prefer to buy their own home rather than rent.

Younger households are facing particular difficulties in accessing home ownership: the percentage of young adult householders owning their home decreased from 55% in 1996 to 30% in 2015 for 25 to 29 year-olds; and from 68% to 46% for 30 to 34 year-olds.

The financial crash and the subsequent fall in house prices after the end of 2007 had only a limited impact on affordability for first time buyers. Lenders have tightened their criteria for mortgage approvals and require buyers to have substantial deposits. Mortgage products themselves are more expensive. There is also an issue of incomes failing to keep pace with house price increases, this is particularly acute in London.

Within this context, the Department for Communities and Local Government single departmental plan, published on 14 December 2017, sets out an ambition to “Increase home ownership through schemes including Help to Buy.”

This paper describes the specific Government initiatives which have been developed in order to assist first time buyers into home ownership and, in some cases, to help existing owners who are seeking to move. Constituents interested in checking their eligibility for these schemes should contact their local Help to Buy Agent.

Low-cost home ownership schemes are not new, they have existed in various forms over many years. Commentators have generally supported interventions to support home ownership in challenging market conditions, but have emphasised the need for an overall increase in housing supply in order to prevent subsidised home ownership from simply adding to house price inflation.

Significant concerns were voiced over the 2015 Government’s emphasis on home ownership. For example, the Chartered Institute of Housing’s response to the Housing and Planning Bill 2015-16 said:

…we must make sure that the new homes we build are a mix of tenures (home ownership, shared ownership, private and social rent) so that people on lower incomes are able to benefit too. The government has made its commitment to home ownership very clear – but what about people who can’t afford to buy, even with government support?

The Treasury Select Committee’s report on the Spending Review and Autumn Statement 2015 (February 2016) questioned the 2015 Government’s focus on the promotion of home ownership:

The Chancellor’s characterisation of problems in the housing market as a “home ownership crisis” is reflected in the policies of the Summer Budget and Autumn Statement, which are likely to reduce the supply of properties to let at both social and market rates, while continuing to subsidise demand for owner-occupation, including through outright discounts on the market value of homes.

While they clearly stimulate demand for owner-occupied housing, it is far less clear, despite the promises to the contrary, that the measures contained in the Summer Budget and Autumn Statement will materially increase the supply of homes. This is likely to lead to a rise in house prices, sharply curtailing any overall increase in owner-occupation. Changes to housing association grants to meet a commitment to provide 135,000 shared ownership homes will alter the tenure of dwellings being built by housing associations, but not the overall number. In any case, the Government has

Number 03668, 14 December 2017 4

allocated money to subsidise the purchase of only 60,000 of a planned 200,000 Starter Homes.

[…]

The Committee is concerned about the focus of the Government’s housing policy. Addressing the “home ownership crisis” must not come at the expense of a shortage of homes to rent. The Chancellor should make clear what he intends to do to help those who want or need to rent, and to ensure a healthy supply of properties in the private rented sector.

Ministers rejected the charge of a disproportionate focus on home ownership during debates on the Housing and Planning Bill 2016-16; for example:

Some noble Lords suggested that the provisions in Chapter 1 mean that we no longer believe in anything other than home ownership, which is not the case. As I have said before, there is a gap in the market. An additional product is required to fill that gap and that is why we are legislating for starter homes. We are helping people to access homes that they can afford in a number of different ways and this Bill should not be seen in isolation. The Government have committed £4.1 billion in spending reviews to deliver 135,000 shared ownership homes and £1.6 billion to deliver 100,000 affordable homes for rent. [HL Deb 3 March 2016 c954]

The Government’s Housing White Paper, Fixing Our Broken Housing Market (February 2017), confirmed the Government’s continued commitment to extending home ownership:

The Government will help people save for a deposit, buy with a smaller deposit, buy at 20% below the market price, buy the home they are renting from a social landlord, buy a share of a home or save a deposit while paying a below market rent…

However, the White Paper also marked a shift in focus from delivering discounted starter homes for first-time buyers, to delivering a wider range of affordable housing, including for affordable rent.

Alongside measures intended to increase the supply of housing, the Autumn Budget 2017 announced two specific measures aimed at extending home ownership:

• An additional £10 billion for the Help to Buy equity loan scheme.

• A new stamp duty relief for first-time buyers.

5 Extending home ownership: Government initiatives

1. First time buyers and affordability

The proportion of households in owner occupation in England increased steadily from the 1980s to 2003 when it reached its peak of 71%. Subsequently, the rate of owner occupation gradually declined to 63% in 2013-14, and has remained at that level.1

Source: DCLG, English Housing Survey Headline Report 2015-16, Annex Table 1.1

Younger households have faced particular difficulties in accessing home ownership: the percentage of young adult householders in England owning their home has decreased from 24% in 2003-04 to 10% in 2015-16 for 16 to 24 year-olds; and from 59% to 38% for 25 to 34 year-olds.2

Source: DCLG, English Housing Survey Headline Report 2015-16, Annex Table 1.4

1.1 Affordability before the credit crunch Prior to the financial crisis and housing market downturn at the end of 2007, there was a great deal of press coverage on the subject of potential first time buyers being priced out of the housing market. For

1 DCLG, English Housing Survey Headline Report 2015-16, p1 2 DCLG, English Housing Survey Headline Report 2015-16, Annex Table 1.4

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example, in January 2005 the Halifax published a survey which indicated that young single people could not afford to buy a home in more than 90% of English towns and cities.3

Up to March 2007, the Labour Government published monthly Housing Market Reports. The June 2004 edition looked at a number of issues around affordability. One of its findings was that the deposit required by first-time buyers in the first quarter of 2004 was 21.7% of the purchase price, compared with 8.8% in the second quarter of 1997. The final Housing Market Report of March 2007 recorded house price inflation as having risen to 10.9% in January 2007, up from 9.9% in December 2006. At the same time, average earnings growth stood at 3.5%, down from 3.6% in December 2006.

In July 2007, the Council of Mortgage Lenders (CML) reported that first- time buyer income multiples had reached their highest-ever level in May of that year:

Today’s survey revealed that first-time buyer income multiples reached their highest-ever level in May at 3.37 times the average first-time buyer income, up from 3.33 times in April. And, mortgage interest payments continued to rise, reaching 19.1%, up from 18.7% in April - their highest level since 1992.

Home movers also face increased affordability constraints. In May the average home mover income multiple reached a record 3.03 times, up from 3.01 times in the previous month. And, the proportion of income used to pay mortgage interest also jumped to 16.6% from 16.3% in April. 4

Roof magazine’s Affordability Index, published in May/June 2008, recorded the UK’s affordability crisis as “reaching a new peak in 2007.” The index, devised by Professor Steve Wilcox of the University of York, took 1994 as the base year (100) and concluded “that UK affordability deteriorated to 176.7 (meaning that it was 76.7% harder to access the market) in 2007.”5

1.2 The credit crunch and beyond The impact of the credit crunch on house prices after 2007 appeared to have only a limited effect on affordability for first-time buyers. Lenders tightened their criteria for mortgage approvals and required buyers to have substantial deposits. Mortgage products themselves were more expensive and, as there was less credit around in the market, there were fewer mortgages available overall. However, Pawson and Wilcox’s Housing Review 2013 observed that for those first-time buyers who were able to secure a mortgage, affordability improved in 2011. This

3 ‘First-time buyers priced out of nine towns in 10’, Daily Telegraph, 22 January 2005 4 CML Confirms affordability worse than ever, 10 July 2007 [accessed on 9 March

2016] 5 Mortgage costs accounted for 12% of householders’ income in 1994 and 21.2% in

2007.

7 Extending home ownership: Government initiatives

assessment was based on mortgage cost-to-income ratios as opposed to the more frequently quoted house-price-to-income ratios.6

The Oxford Economics report (Housing Market Analysis, July 2011) reached the following conclusions on the outlook for first time buyers:

One of the key constraints is mortgage availability. We expect the squeeze in lending standards to dissipate gradually over the coming two to three years. We have already seen the reintroduction of mortgages with higher loan to valuation ratios, but ratios remain well short of those seen at the peak (lenders are just about starting to reintroduce 90% deal), and credit scores and other non-financial criteria are being applied much more strictly. As such, we expect the average LTV to creep up only steadily from the 2010 averages of just under 70% for first timers and 62% at the overall level. We assume that over the medium term average LTVs settle at 75% and 65% respectively. 7

Additional analysis of the housing market at that time, including affordability predictions by Oxford Economics, can be found in the National Housing Federation’s report Home Truths 2012 (August 2012).

Shelter published an analysis of Housing affordability for first time buyers in March 2015. This compared changes in affordability between 1969 and 2013, and found that since 1969, house prices for first-time buyers had increased by 48 times, while incomes had only increased by 29 times.

The UK Housing Review 2015 Briefing Paper noted that sharp price rises in 2014 made buying less affordable across the UK year-on-year, but outside London prices were still more affordable than in 2007:

By 2014, ONS mix-adjusted first-time buyer prices were back above 2007 levels across Great Britain; but only in London (48 per cent) and to a lesser extent the East (18 per cent) and South East (20 per cent) were prices significantly higher. In Scotland and Wales, and elsewhere in England, 2014 prices were less than ten per cent above 2007 levels though of course they are still rising. In Northern Ireland, after a far more severe housing market collapse, they remained nearly 40 per cent below 2007 levels.

After recovering from the downturn, higher prices have been offset by a combination of modest increases in incomes and lower interest rates. Working-household incomes in 2014 were some six per cent higher (in cash terms) than in 2007, while average interest rates for new mortgages fell from 6.1 to 3.1 per cent. So while house-price-to-income ratios outside London (and the East and South East) in 2014 were very similar to those in 2007, once lower interest rates are taken into account mortgage-cost-to-income ratios were lower in 2014 in every part of the UK except London.8

6 Housing Review 2013, Hal Pawson & Steve Wilcox, p66 7 Oxford Economics report, July 2011 8 UK Housing Review 2015 Briefing Paper, Steve Wilcox, John Perry and Peter

Williams, p9

Number 03668, 14 December 2017 8

On 22 February 2016 the Office for National Statistics (ONS) published Why are more people living with their parents? in which a significant fall in young adult home owners was noted:

The percentage of young adult householders 9 owning their home decreased from 55% in 1996 to 30% in 2015 for 25 to 29 year olds; and from 68% to 46% for 30 to 34 year olds. 10

The ONS research showed an increase in first-time buyers after 2012, although at levels still below the average seen prior to 2003.11

The CML’s February 2016 Market Commentary recorded an improved position for first-time buyers at the end of 2015. The September 2017 CML Market Commentary recorded “modest growth” since the beginning of the year together with a shift towards first-time buyers and away from buy-to-let and cash purchases:

The Bank of England’s Agents’ survey suggests part of the strength in first-time buyer activity is down to demand for new-build properties using the Help to Buy equity loan scheme. There are also several other government schemes aimed predominantly at first-time buyers, such as the Help to Buy ISA, that are no doubt helping boost their numbers.

Benefitting much less from government schemes, home movers have largely been treading water over the last few years. The shortage of homes on the market for sale has also meant that some would-be movers are struggling to find suitable homes, and so do not put their own homes up for sale.

In the buy-to-let space, government interventions coupled with regulation has led to a flat market with around 6,000 house purchases a month since April 2016, after the stamp duty change on second properties came into effect.

As well as a change in the type of activity, there is some evidence to show the regional mix has shifted, away from London, the south east and east Anglia, towards the north of England, Wales, and Scotland.

The common characteristic in this divergence is that regions which have typically been less affordable have shown signs of weaker activity, while regions which are relatively more affordable have been more buoyant. Respondents to the Royal Institution of Chartered Surveyors survey and the Bank’s survey reflected this shift in activity.

At a regional level, the difference in affordability (as measured by the typical income multiple for home owners) between the most and least affordable regions has diverged since 2013, with the gap doubling over this period.

9 The household reference person is the householder, which is the household member

who owns the accommodation; or is legally responsible for the rent; or occupies the accommodation as reward of their employment, or through some relationship to its owner who is not a member of the household. If there are joint householders, the one with the highest income is the household reference person. If their income is the same, then the eldest one is the household reference person.

10 ONS, Why are more people living with their parents? 22 February 2016 11 Ibid.

9 Extending home ownership: Government initiatives

This trend may reverse, and we may see some rebalancing, if the shift in activity is sustained. It’s also the case that sentiment and price expectations in regions where affordability is stretched has weakened or is negative.12

The chart below shows longer-term trends in numbers of first-time buyers in England. It shows a sharp decline between early 2008 and early 2009, followed by a gradual and variable increase up to 2017.

Source: UK Finance, Mortgage Industry Data Tables, Table ML2R

House prices for first-time buyers have risen at a similar rate to overall house prices. The average price for a first time buyer was £204,549 in September 2017, 5% higher than a year previously and 36% higher than in September 2012.

Source: HM Land Registry, UK House Price Index: Data downloads 2017

The following chart shows trends in income multiples on first-time buyer mortgages in England and in London specifically. Median income

12 CML September 2017 Market Commentary

Number 03668, 14 December 2017 10

multiples have been consistently higher in London, but have followed similar trends. They increase from 2007 to 2008 and then dip at the time of the credit crunch, before increasing fairly steadily from 2009 onwards.

Source: UK Finance, Mortgage Industry Data Tables, Table ML2R

London Affordability in London remains a challenge. The UK Housing Review 2015 Briefing Paper highlighted that “the difference between London and the rest of the UK is now uniquely high” and continued:

Analysis by Alan Holmans has shown a post-war cyclical pattern, with London taking the lead, so that house-price differentials between London and the rest of the UK widen in the upturn and narrow in the downturn. Updating his analysis shows that the difference in London prices has now climbed to a post-war peak: they are 85 per cent higher than the UK average.

[…]

The differential between average household incomes in London relative to the rest of the UK has widened somewhat over the last two decades, but they are still only some 32 per cent higher, and can only be a minor factor in explaining house price differences. Clearly London is increasingly an international housing market, especially at the top end. And with a sharp reported rise in interest in £2 million plus properties now that any threat of a mansion tax has been removed, a further rise in high-end London prices is widely anticipated.

Estimates vary but properties valued at over £2 million probably form less than three per cent of London’s private housing, although clearly their impact on average prices is rather greater. Other factors are wider housing market pressures and the shortfall in supply, but these are perennial issues for London and it is not clear that they have grown in recent years relative to the rest of the UK. The reasons for the unprecedented price differentials need to be better understood, both to assess future prospects and to make appropriate policy responses. 13

13 CIH, UK Housing Review 2015 Briefing Paper, 2015

11 Extending home ownership: Government initiatives

The CML recorded a fall in lending to first-time buyers in London in 2015 compared with 2014:

• The number of loans for home-owner house purchase in London decreased year-on-year to 81,600 loans (£24.5bn) - down 5% by volume but up 1% by value on 2014.

• First-time buyers took out 45,600, worth £11.6bn - down 6% by number of loans and 1% by amount borrowed compared to 2014.

• Home movers took out 35,900 loans (£12.9bn) - down 3% by volume but up 4% by value year-on-year.

• Remortgage lending totalled 48,600 loans, worth £13.7bn, which was up 14% by volume and 25% by value on 2014.14

Paul Smee, CML director general, commented:

House purchase lending in London fell in 2015 due mainly to a slow start: later months of the year saw activity pick up again. Persisting supply and affordability issues, alongside the introduction of the Help to Buy London scheme, means there will be some uncertainty around how the market will perform going into 2016. By contrast, remortgage activity, which has been consistently flat for the past few years, appears to be on an upward trend. Competitive mortgage rates appear to have sparked this activity and we have not seen quarterly volumes at this level since 2009. 15

The chart below shows longer-term trends in new mortgages taken up by first-time buyers in London. Overall trends are similar to those in England as a whole.

Source: UK Finance, Mortgage Industry Data Tables, Table ML2R

Looking forward, the UK Housing Review 2017 Briefing Paper notes:

In 2017 there are indications that London house prices are beginning to fall, and clearly the squeeze on real incomes and

14 CML London house purchase lending dips in fourth quarter of 2015, 24 February

2016 15 Ibid.

-

10,000

20,000

2007 2012 2017

FIRST-TIME BUYER MORTGAGES IN LONDONNumber of first-time buyer mortgages, quarterly, London

Number 03668, 14 December 2017 12

anxieties about post-Brexit economic prospects are a factor. Such uncertainty is likely to keep interest rates low for a while yet, but eventually they must be expected to rise from their current exceptionally low levels. This should act as a further check on future house-price growth.16

16 CIH, UK Housing Review 2017 Briefing Paper, 2017, p11

13 Extending home ownership: Government initiatives

2. Low-cost home ownership schemes in England

Background One of the Labour Government’s responses to the difficulties faced by first-time buyers in accessing home ownership was to develop a series of low-cost home ownership schemes. Around 95,000 people were assisted into home ownership under these schemes between 1997 and 2008.17 No specific sales targets were set for schemes such as Open Market HomeBuy or New Build HomeBuy in order “to ensure flexibility within the programme.”18

In 2010, the Coalition Government set out its initial position on encouraging home ownership:

Grant Shapps: The Government are committed to helping those who aspire to own their own home, through ensuring a return to economic and financial stability. The Government are seeking to achieve this through a programme of debt reduction and a commitment to abolish the structural deficit in the life of this Parliament. This will help to keep mortgage interest rates low and improve credit availability.

The coalition agreement included a commitment to promote shared ownership. While grant funding under the new investment model for affordable housing announced in the spending review will primarily target the new affordable rented product, there may be some scope for delivery of low-cost home ownership as part of the contractual arrangements with providers where this is appropriate for local circumstances. 19

As part of the 2013 Budget the Coalition Government announced additional measures to assist first-time buyers and those seeking to move but struggling to obtain a mortgage, including Help to Buy and a package of measures to increase the supply of low-deposit mortgages for credit-worthy households. 20

The Autumn Statement and Spending Review 2015 saw the Chancellor announce a Five Point Plan to increase home ownership:

The Chancellor set out in the Productivity Plan that there remains more to do, particularly to re-focus support for housing towards low-cost home ownership for first time buyers. This Spending Review sets out a Five Point Plan for housing to:

1. Deliver 400,000 affordable housing starts by 2020-21, focussed on low-cost home ownership. This will include:

• 200,000 Starter Homes which will be sold at a 20% discount compared to market value to young first time buyers, with a £2.3 billion fund to support the delivery of

17 Communities and Local Government (CLG) Press Release, Budget will help first- time

buyers with new home loans, 12 March 2008 18 HC Deb 8 May 2008 c1078W 19 HC Deb 1 December 2010 c 848W 20 HC 1033, March 2013

Number 03668, 14 December 2017 14

up to 60,000 of these, in addition to those delivered through reform of the planning system

• 135,000 Help to Buy: Shared Ownership homes, which will allow more people to buy a share in their home and buy more shares over time, as they can afford to. The scheme will be open to all households earning less than £80,000 outside London and £90,000 in London, and will relax and remove previous restrictions such as local authorities’ rights to set additional eligibility criteria

• 10,000 homes that will allow a tenant to save for a deposit while they rent. This will be in addition to 50,000 affordable homes from existing commitments

• at least 8,000 specialist homes for older people and people with disabilities

[…]

2. Deliver the government’s manifesto commitment to extend the Right to Buy to Housing Association tenants. The number of tenants benefitting from the local authority scheme has increased by 319% since 2012, and now extending the scheme will give 1.3 million households the opportunity to become home owners. The government will launch a pilot of the Right to Buy with five Housing Associations, to inform the design of the final scheme.21

As part of Budget 2016, the Government said it would “explore options for encouraging private investment in low-cost homeownership, including the scope to use guarantees.”22

The Government’s Housing White Paper – Fixing Our Broken Housing Market (February 2017) – confirmed a continued commitment to extending home ownership:

The Government will help people save for a deposit, buy with a smaller deposit, buy at 20% below the market price, buy the home they are renting from a social landlord, buy a share of a home or save a deposit while paying a below market rent…23

The different home ownership schemes currently on offer are explained in the following sections.

2.1 Equity loan schemes Equity loans help people to buy a home where they can't raise a mortgage to cover the full price. When the buyer sells and moves on, the equity loan is repaid as an equivalent proportion of the proceeds of the sale. So the repayment includes a share in any increase - or decrease - in the value of the home.

The Labour administration introduced several equity loan schemes under the HomeBuy banner. The Coalition Government announced the introduction of the FirstBuy scheme, also a type of equity loan scheme,

21 Autumn Statement and Spending Review 2015 pp40-42 22 HC901, Budget 2016, 16 March 2016, para 2.298 23 DCLG, Fixing Our Broken Housing Market, 7 February 2017, para. 4.7

15 Extending home ownership: Government initiatives

during the 2011 Budget. FirstBuy has now been overtaken by the Help to Buy equity loan scheme.

Help to Buy: equity loan In Budget 2013 the Chancellor announced the replacement of the FirstBuy scheme:

From 1 April 2013, building on the success of First Buy, Help to Buy: equity loan will be opened up to all those who aspire to own a new build home.

The Government will:

• provide an equity loan worth up to 20 per cent of the value of a new build home, repayable once the home is sold;

• significantly widen the eligibility criteria to ensure as many people as possible are able to benefit. The maximum home value will be £600,000 and there will be no income cap constraint; and

• ensure that the scheme is open not only to first-time buyers but also to all those looking to move up the housing ladder.

Help to Buy: equity loan will be open for the next three years, providing £3.5 billion of investment in England, supporting up to 74,000 more home buyers as well as providing a boost to the construction sector. 24

The Government’s Help to Buy website provides an infographic on the scheme; detailed information is contained in the Homes and Communities Agency’s Help to Buy Buyer’s Guide (August 2015). The Help to Buy equity loan scheme is restricted to new-build properties and is not available for the purchase of a second home.

The Help to Buy equity loan scheme was funded to a value of £9.7 billion until 2020 and was expected to cover up to 194,000 new home buyers, but during the Autumn Statement 2015 the Chancellor said the scheme would be extended to 2021.25 The Government’s subsequent Housing White Paper – Fixing Our Broken Housing Market (February 2017) – recognised the need to create certainty for prospective home owners and developers beyond 2021, and committed the Government to work with the sector to consider the future of the scheme.26

DCLG commissioned independent research into the Help to Buy equity loan scheme from Ipsos MORI in partnership with the London School of Economics, the findings of which were published in February 2016: Evaluation of the Help to Buy Equity Loan Scheme.

Official statistics published in September 2017 show:

24 HC 1033, March 2013 25 DCLG and HM Treasury, Help to Buy: new announcements explained, 25 November

2015 26 DCLG, Fixing Our Broken Housing Market, 7 February 2017, para. 4.12

Number 03668, 14 December 2017 16

• Over the period since the launch of the Help to Buy: Equity Loan scheme (1 April 2013 to 30 June 2017), 134,558 properties were bought with an equity loan.

• The total value of these equity loans was £6.72 billion, with the value of the properties sold under the scheme totalling £32.37 billion.

• Most of the home purchases in the Help to Buy: Equity Loan scheme were made by First Time Buyers, accounting for 108,620 (81 per cent) of total purchases.

• The mean purchase price of a property bought under the scheme

was £240,530, compared with a mean equity loan of £49,963.27

In the Autumn Budget 2017 the Government confirmed an additional £10 billion for the Help to Buy equity loan scheme, which it expects will support an additional 135,000 people to buy a new home.28

Help to Buy London In line with the commitment made in the Autumn Statement 2015, the Government launched a Help to Buy London scheme in February 2016 with a higher upper limit for the loan, in recognition of higher housing costs in the capital:

The Help to Buy scheme is an equity loan provided by the Government. They lend you up to 40% of the cost of your new build home, so you will need a minimum 5% deposit and a 55% mortgage to make up the rest.

For this scheme you must have a mortgage, which will be a first charge, as the equity loan can only be a second charge. The equity loan is for a maximum of 25 years or before if the property is sold or the mortgage is redeemed, whichever term is the shorter of the two.

You will not be charged any interest on the 40% loan for the first five years of owning your home. However a management fee of £1 a month will be applicable from the date of purchase. From year six, a fee of 1.75% is payable on the equity loan, which rises annually by RPI (Retail Price Index) inflation plus 1%. 29

Official statistics published in September 2017 show that from February 2016 to June 2017, there were 4,586 completions in London, of which 3,487 were made with an equity loan higher than 20%. 30

2.2 Shared ownership Under this scheme applicants buy a leasehold property (flat or house) on shared ownership terms. They buy a minimum (usually 25%) share of

27 DCLG Official Statistics, Help to Buy (equity loan scheme) and Help to Buy: NewBuy

statistics: April 2013 to 30 June 2017, 28 September 2017 28 HM Treasury, Autumn Budget 2017, HC587, 22 November 2017, para. 5.29 29 Help to Buy London website [accessed on 9 March 2016] 30 DCLG Official Statistics, Help to Buy (equity loan scheme) and Help to Buy: NewBuy

statistics: April 2013 to 30 June 2017, 28 September 2017

17 Extending home ownership: Government initiatives

the property and the remaining share, on which rent is payable, is owned by a housing association. Purchasers can buy additional shares in the property as and when they can afford to do so.31 Staircasing is usually possible in minimum 10% tranches up to 100%. The scheme was originally open to all key workers, social housing tenants and those in priority housing need but was extended to all first-time buyers with an income of less than £60,000 on 14 May 2008. The income limits were more generous for applicants in London.

Between 31 January and 28 February 2015, the Government consulted on proposed rule changes aimed at reducing bureaucracy and removing barriers to shared ownership.32 The outcome was announced in March 2015:

…the Homes and Communities Agency will amend the model leases and guidance for future shared ownership properties to remove the Pre-emption right following 100% staircasing and amend guidance to recommend providers remove the Pre-emption right following 100% staircasing, for existing shared ownership leases. 33

In November 2015 the Government announced additional changes, including an increase in the income limit, which came into effect in April 2016:

Currently, these [shared ownership homes] are allocated in several different ways including criteria set by local councils, for example whether potential buyers work in the local area or if they are already in council housing.

Help to Buy Shared Ownership will lift the limits so that anyone who has a household income of less than £80,000 outside London, and £90,000 inside London, can buy a home through shared ownership. Only military personnel will be given be priority over other groups. The scheme will apply across England.

People can buy a share between 25% and 75% of a home. The rent on the rest of the property won’t be more than 3% of the amount left.

For example, on a house worth £227,000 where the buyer has bought a 40% share, the rent won’t be more than 3% of the remaining 60% - in this case £4,000 a year, or £340 a month. 34

The Autumn Statement 2015 contained a commitment to develop 135,000 of these properties. On 7 December 2015 the Prime Minister announced a further lifting of restrictions:

In a major expansion to the scheme – which allows people to part buy, part rent properties, increasing their ownership over time – the government will be putting an end to restrictions that stop people using the scheme more than once.

31 This process is known as staircasing. 32 DCLG, Proposals to streamline the resale of shared ownership properties, January

2015 33 DCLG, Proposals to streamline the resale of shared ownership properties: summary

of responses, March 2015 34 DCLG, Help to Buy new announcements explained, 25 November 2015

Number 03668, 14 December 2017 18

This means that for the first time, those already in a shared ownership property will be able to move to another –allowing them to use the capital they have gained to move to a bigger property, as their families grow or circumstances change. 35

Budget 2016 announced that funding to develop 13,000 shared-ownership homes would be brought forward:

…the delivery of 13,000 affordable homes two years early by bringing forward £250 million of capital spending to 2017-18 and 2018-19.36

The Government’s Affordable Homes Programme 2016-21 aims to increase the supply of shared ownership and other affordable homes by March 2021. The programme was originally designed to focus on delivering shared ownership. However, the Housing White Paper (February 2017) marked a shift in policy to delivering a wider range of affordable housing, including for affordable rent.37 Following the Autumn Budget 2017, the total budget for the Affordable Homes Programme is £9.1 billion to 2020/21.38

Additional information on shared ownership can be found on the GOV.UK website.

In addition to the standard shared ownership product, the Homes and Communities Agency (HCA) offers two specific versions: Home Ownership for People with Long Term Disabilities (HOLD) and Older Persons Shared Ownership (OPSO). Information on these schemes is also accessible via the GOV.UK website

2.3 Rent to Buy On 26 September 2014, the Coalition Government launched a new £400 million Rent to Buy scheme to boost building of new rental homes and extend home ownership. Under the Rent to Buy scheme (also referred to as Rent to Save or Intermediate Rent), the Government offered low cost loans to providers to build homes to be let at sub-market rent for a minimum of 7 years to households who had never owned a home before. The tenants could then use this fixed period of support to save for a deposit to buy the home they were renting or a different home. Providers have up to 16 years to pay back the low-cost loans.39

Following the Government’s Autumn Statement (November 2015) the Rent to Buy programme was closed to new applications and activity under the programme has now ended.40

35 Prime Minister’s Office Press Release, 7 December 2015 36 HC901, Budget 2016, 16 March 2016, para 1.118 37 DCLG, Fixing Our Broken Housing Market, 7 February 2017, para 4.27 38 HM Treasury, Autumn Budget 2017, HC 587, 22 November 2017, para 5.23 39 DCLG, New 'Rent to Buy' scheme to help young people save and move up housing

ladder, 26 September 2014 40 GOV.UK, Rent to Buy 2015 to 2017: prospectus withdrawn [Accessed 7 December

2017]

19 Extending home ownership: Government initiatives

As part of its Housing White Paper – Fixing our broken housing market (February 2017) – the Government has consulted on proposals to broaden the definition of ‘affordable housing’ for planning purposes. The consultation closed on 2 May 2017 and the Government is currently analysing responses. However, the Government has confirmed that:

Subject to the outcome of the consultation on the Housing White Paper, we envisage that affordable rent to buy housing which meets the criteria set out in the proposed definition of affordable housing would be classified as affordable housing in the revised National Planning Policy Framework.41

Funding for Rent to Buy is available from the Government’s Affordable Homes Programme 2016-21, which supports the delivery of a wide range of affordable homes.42

More information on Rent to Buy homes can be found on the HomeOwners Alliance website. The website notes that there is very limited availability and eligibility criteria can differ depending on the provider the property is offered through. 43

2.4 NewBuy Guarantee In Laying the Foundations: A Housing Strategy for England (2011) the Coalition Government set out plans to “get the housing market moving” through a variety of measures, including the development of what was then called a “mortgage indemnity scheme:”

...supporting a new and innovative new build indemnity scheme led by the Home Builders Federation and Council of Mortgage Lenders to provide up to 95 per cent loan to value mortgages for new build properties in England, backed by a housebuilder indemnity fund.

Grant Shapps declared the scheme, now called the NewBuy Guarantee Scheme, “open for business” on 12 March 2012.44 He said:

From today three leading high street lenders and seven of the country's biggest building firms will begin to offer mortgages on newly-built properties to people with just a five per cent deposit; a financial product not available anywhere else in the market. Other leading names, including smaller housebuilders, are expected to follow their lead in the coming weeks and months.

Today's deals will mean that instead of a typical buyer requiring a £40,000 deposit for £200,000 property, they will now only need £10,000. The Government and housebuilders will help provide security for the loan, so if the house is then sold for less than the outstanding mortgage total the lender will be able to recover its loss.

The scheme, which has attracted strong support from many of the country's biggest house-builders and mortgage lenders, will offer

41 Written Question 107407, 17 October 2017 42 Homes and Communities Agency, Shared Ownership and Affordable Homes

Programme 2016 to 2021 Prospectus, 13 April 2016 43 Accessed on 7 December 2017 44 DCLG Press Release, Unlocking aspiration for a new generation of home buyers,

2012

Number 03668, 14 December 2017 20

help for up to 100,000 buyers who would otherwise be frozen out of the market.

The deals will include:

• Barclays who will offer 95 per cent Loan-to-Value mortgages on properties built by Barratt, Bellway, Bovis, Persimmon, Redrow and Taylor Wimpey at just 4.99 per cent fixed rate for two years and 5.89 per cent fixed rate for four years

• Nationwide who will offer 95 per cent Loan-to-Value mortgages on properties built by Barratt, Bovis, Bellway, Persimmon, Redrow and Taylor Wimpey at just 5.69 per cent fixed rate for three years and 5.99 fixed rate for five years; and

• NatWest who will offer 95 per cent Loan-to-Value mortgages on properties built by Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey at just 4.29 per cent fixed rate for two years and 4.99 per cent fixed rate for five years.

In addition, Crest Nicholson will be joining the scheme imminently.

The NewBuy Guarantee will support an estimated 50,000 jobs in construction and related industries by increasing demand for newly-built homes.

The scheme will also help jumpstart the stalled housing market as people begin to move, ensuring more newly-built and older properties become available to buy. 45

The notes to the press release provided more detailed information on the operation of the scheme.

In April 2014, the NewBuy scheme was brought under the Help to Buy umbrella – see below.

2.5 Help to Buy: mortgage guarantee scheme (now closed)

The other strand of the Help to Buy scheme announced by the Chancellor as part of the 2013 Budget was the development of a new mortgage guarantee scheme:

The Government will create a major new Help to Buy: mortgage guarantee to increase the availability of mortgages on new or existing properties for those with small deposits.

The Help to Buy: mortgage guarantee, a temporary scheme that will run for three years from January 2014 46, will:

• increase the supply of high loan-to-value mortgages by offering a government guarantee to lenders who offer

45 Ibid. 46 The scheme was launched early for applications in October 2013.

21 Extending home ownership: Government initiatives

mortgages to people with a deposit of between 5 per cent and 20 per cent;

• be open not only to first-time buyers but also to existing homeowners;

• have no income cap constraint; and

• be available on homes with a value of up to £600,000.

Help to Buy: mortgage guarantee will, subject to the final design, make available up to £12 billion of government guarantees, sufficient to support £130 billion of high loan-to-value mortgages. 47

It was launched for applications in October 2013 – three months earlier than originally planned. There is an infographic on the scheme.

The Treasury also published a scheme outline.

The 2013 Autumn Statement (December) hailed the success of both Help to Buy schemes:

The government’s Help to Buy schemes are supporting home ownership. Over 18,000 reservations for new homes have been made under the equity loan scheme since it was launched in April 2013. In the month since the Help to Buy: mortgage guarantee scheme rules were published, more than 2,000 people have put in applications to lenders totalling £365 million of new mortgage lending. Over 900 developers have registered to deliver the equity loan scheme, and more than 65% of the mortgage market have committed to participate in the mortgage guarantee scheme. 48

The Help to Buy mortgage guarantee scheme closed to new loans on 31 December 2016 as planned. Participating mortgage lenders were able to continue to complete loans into the scheme until 30 June 2017, where they had an application date on or before 31 December 2016.49

Official statistics published in September 2017 show that:

• Since the launch of the Help to Buy: mortgage guarantee, 104,763 mortgages have been completed with the support of the scheme.

• Of these, 80% were purchases by first-time buyers.

• The total value of mortgages supported by the scheme is £15.8 billion.

• Compared to total mortgage completions in each region, the scheme has supported a higher proportion of mortgages in the East of England and Scotland, and a lower proportion in the South East and London.

47 HC 1033, March 2013 48 Cm 8747, December 2013, para 1.225 49 HM Treasury, Help to Buy: mortgage guarantee scheme Quarterly Statistics, 28

September 2017, p.3

Number 03668, 14 December 2017 22

• The mean value of a property purchased or remortgaged through the scheme was £159,170, compared to a national average house price of £223,000.50

2.6 Help to Buy: ISA In the March 2015 Budget Statement the Chancellor announced an expansion of the Help to Buy scheme by introducing a Help to Buy ISA.

First time buyers saving through a Help to Buy: ISA receive a Government bonus of 25% of the amount saved. The Government contributes a maximum of £3,000 for £12,000 of savings. The bonus is calculated and paid when an individual buys their first home; the discount is calculated per person, rather than per household, which means that people buying together can both receive a bonus.

The bonus is available for people buying their first home up to a value of £250,000 outside London and £450,000 in London.51

The Government has produced a Help to Buy ISA factsheet. The ISA was launched in autumn 2015. The Government’s Housing White Paper – Fixing Our Broken Housing Market (February 2017) – states that “More than 720,000 accounts have been opened to date and over 38,000 bonuses worth £20.5 million have been paid to September 2016, supporting over 27,000 home purchases”.52

2.7 The lifetime ISA Budget 2016 announced the introduction of a new savings product which can be used by first time buyers to help them buy a property:

The Lifetime ISA

The government wants to help young people save flexibly for the long term and ensure they do not have to choose between saving for retirement and saving for their first home. The Budget announces that from 6 April 2017 any adult under 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in.

Contributions can continue to be made with the bonus paid up to the age of 50. Funds can be used to buy a first home with the government bonus at any time from 12 months after opening the account, and can be withdrawn from the Lifetime ISA with the government bonus from age 60 for use in retirement.

The government will set the limit for property purchased using Lifetime ISA funds at £450,000. This limit will apply nationally. People can continue to open a Help to Buy: ISA until November 2019, as planned. They can also choose to open a Lifetime ISA, but will only be able to use the government bonus from one of their accounts to buy their first home. During the 2017-18 tax year, those who already have a Help to Buy: ISA will be able

50 HM Treasury, Help to Buy: mortgage guarantee scheme Quarterly Statistics, 28

September 2017 51 HM Treasury, Help to Buy: ISA, scheme outline, March 2015 52 DCLG, Fixing Our Broken Housing Market, 7 February 2017, para. 4.8

23 Extending home ownership: Government initiatives

to transfer the savings they have built up into the Lifetime ISA and still save an additional £4,000.

Whilst this is a product aimed at encouraging saving for the long term, the government understands that circumstances change so wants to ensure that people can access their own money if they need it whilst also keeping an incentive to leave funds invested for the long term. The government will consider whether Lifetime ISA funds plus the government bonus can be withdrawn in full for other specific life events in addition to buying a first home.53

The Lifetime ISA was introduced in April 2017. Further information about the ISA is available on GOV.UK.

2.8 Starter homes This was one of the 2015 Government’s flagship schemes for increasing housing supply and improving access to home ownership for first-time buyers.

In December 2014 the Prime Minister announced the launch of a new scheme aimed at providing discounted starter homes exclusively to under 40s at no cost to the tax payer.54 Potential applicants have been able to register interest in the scheme since February 2015.55

The Housing and Planning Act 2016 and associated regulations provide the statutory framework for the development of starter homes.

Starter homes will be exclusively available to first-time buyers aged between 23 and 40 who will benefit from a 20% reduction on market value. A household income eligibility cap of £80,000 (£90,000 in London) will apply. The properties developed under this scheme are set to cost no more than £250,000 outside of London and £450,000 within London.

Restrictions on the resale and letting of starter homes will apply in order to deter people buying them for rental investment or short-term speculation. First-time buyers will have to have a minimum 25% mortgage. A tapered approach will operate in relation to the repayment of the 20% discount on resale of starter homes. Regulations, to be issued in due course, will set out the detail on how the taper will work and the period over which some repayment of discount will be required.

Specific funding was made available via the Starter Homes Land Fund (£1.3 billion) to support the acquisition, remediation and de-risking of suitable land for starter home developments. The development of starter homes was also to be facilitated through planning policy.

53 Ibid., paras 1.108-11 54 ‘Government launches £26m Starter Homesfund’, Inside Housing, 10 August 2015 55 DCLG, Young first-time buyers can register online for 100,000 cut-price homes, 28 February 2015

Number 03668, 14 December 2017 24

The Government expects to help over 200,000 people become homeowners through a range of Government programmes, including starter homes, by 2020.

The Government has been probed on progress in building starter homes, for example:

To ask the Secretary of State for Communities and Local Government, how many starter homes have been built in each of the last five years.

Our Housing White Paper: Fixing Our Broken Housing Market set out plans for starter homes to help young people into home ownership. We have made clear starter homes should be targeted at first-time buyers who would otherwise be priced out of the market; have consulted on a minimum 10 per cent affordable home ownership national planning policy expectation for major sites; and have made good progress securing suitable sites for starter homes through the starter homes land fund.56

The Office of Budget Responsibility (OBR) confirmed a reduction in funding for this program in its November 2017 report.57

The Commons Library briefing paper Starter Homes for First-Time Buyers (England) (7643) provides further information.

2.9 Failed housing transactions Budget 2016 also included a commitment to “publish a call for evidence on how to make the [house buying] process better value for money and more consumer-friendly.”58 In October 2017 the Government issued a call for evidence seeking views on how to make the process of home buying and selling cheaper, faster and less stressful.59 The consultation closed on 17 December 2017.

56 Written Question – 9807, 5 October 2017 57 OBR, Economic and Fiscal Outlook, November 2017, para 4.111 58 HC901, Budget 2016, 16 March 2016, para 1.119 59 DCLG, Improving the home buying and selling process: call for evidence, 22 October

2017

25 Extending home ownership: Government initiatives

3. Purchase schemes for social housing tenants

In addition to the schemes outlined below, in Budget 2016 the Government said it would “explore ways to extend homeownership to social tenants who cannot afford to take advantage of existing schemes.”60

3.1 Right to Buy and Right to Acquire Around 80% of social housing tenants have a statutory Right to Buy or acquire the home in which they live at a discount.

Under the Right to Buy most council tenants, most former council tenants living in homes transferred to a housing association, and most housing association tenants who have lived in their home since before 15 January 1989, have a statutory Right to Buy their home with a discount on the open market value.

Currently, most assured tenants of housing associations do not, as a general rule, have the Right to Buy the home in which they live on the same basis as council tenants. For more information see Library note SN00648: Housing association tenants: right to buy (but see section 3.2 below).

Measures to reduce the qualifying period before tenants become eligible to apply for the Right to Buy and Right to Acquire from five to three years were included in the Deregulation Act 2015. These measures came into force on 26 May 2015. Information on the Right to Buy can be found in a DCLG booklet: Your right to buy your home: a guide.

Under the Right to Acquire scheme, housing association tenants living in homes built or acquired with public subsidy since April 1997, and those living in homes transferred from a local authority to a housing association from the same date, have a statutory Right to Acquire their home with a discount on the open market value. The level of the discount is subject to a maximum limit of between £9,000 and £16,000 depending on the local authority area in which the property is situated. Some properties are exempt, including those in designated rural areas (generally areas with a population of 3,000 or less) and supported housing for people with special needs. Additional information can be found on the GOV.UK website.

3.2 An extended Right to Buy A voluntary deal agreed between the National Housing Federation (NHF) and the Government means that the Right to Buy (RTB) will be extended to housing association tenants on a non-statutory basis.

60 HC901, Budget 2016, 16 March 2016, para 2.304

Number 03668, 14 December 2017 26

The detail of the scheme is being developed. An evaluation of an initial pilot with five housing associations was published in January 2017.61

The Autumn Budget 2017 confirmed that the Government will proceed with a £200 million large-scale regional pilot in the Midlands.62 According to the NHF the pilot is likely to last for one year and will test aspects not tested in the initial pilot, including: one for one replacement; portability; and the application of the RTB guidance which has been jointly designed by the NHF, housing associations and the Government.63

The Government has not committed to a date for national implementation of the RTB for housing association tenants.

Detailed background on extending the RTB can be found in Library Briefing Paper 07224, Introducing a Voluntary Right to Buy for Housing Association Tenants in England.

3.3 Cash incentive schemes In addition to the schemes described above, council tenants may benefit from Cash Incentive Schemes at the discretion of their landlord. These schemes involve a grant which is issued to tenants to help them to buy a home on the open market, thereby freeing up a social rented home for new tenants.

A Regulatory Reform Order to allow local authorities to run schemes without the Secretary of State's consent came into force on 1 April 2003.64 The Order allows local authorities to set the size of grant payable to take into account the local housing market. All grants must be means tested. There is no central funding for these schemes; where they exist they are funded from the local authority’s capital resources.

In February 2015, the Chancellor announced an £84 million fund over two years to offer social tenants up to £20,000 across England and up to £30,000 in London to buy a new home on the open market. The Social Mobility Fund was aimed at tenants who would have qualified for the Right to Buy to leave their social rented home and buy a property on the open market. Local authorities were able to bid for funding for the scheme in 2015.65 The amount of discount offered for applicants was below that available under Right to Buy. The Treasury said this was because tenants would benefit from the “substantial additional benefit” of being able to choose their home.66

61 Centre for Regional Economic and Social Research, The Pilot Programme for the

Voluntary Right to Buy for Housing Associations: An Action-Learning Approach, 11 January 2017

62 HM Treasury, Autumn Budget 2017, HC587, 22 November 2017, Para. 5.32 63 National Housing Association webpage: The pilot schemes [Accessed 01/12/2017] 64 Regulatory Reform (Schemes under s.129 of the Housing Act 1988) (England) Order

2003 (SI 2003/986) 65 DCLG, Right to Buy social mobility fund prospectus, February 2015 66 ‘Osborne offers tenants cash as right to buy alternative’, Inside Housing, 27 February

2015

27 Extending home ownership: Government initiatives

3.4 Social HomeBuy The Social HomeBuy scheme is aimed at assisting tenants of social landlords who do not qualify for the Right to Buy or Right to Acquire or who cannot afford to exercise these rights, to buy a share of their rented home.

This discretionary scheme operates on a shared ownership basis – tenants buy a minimum share of 25% of the value of the property. The purchase attracts a discount which is the Right to Acquire discount (generally between £9,000 and £16,000 - depending upon the local authority area in which the property is located), pro-rata to the share purchased. Since 1 April 2008 new applicants have also been entitled to receive a discount on further shares bought.

Rent is payable on the un-owned share of the property. Staircasing is allowed in minimum 10% tranches up to 100%. Exemptions operate in rural areas that are also exempt from the Right to Acquire and to housing specifically for those with long term disabilities or special needs, or housing specifically provided for the elderly.

Number 03668, 14 December 2017 28

4. Stamp duty reforms Over the past three years the Government has announced three reforms to stamp duty land tax (SDLT) charged on the sale of residential property, designed, to differing degrees, to encourage home ownership, particularly for first-time buyers:

• In the 2014 Autumn Statement the then Chancellor, George Osborne, announced that the ‘slab’ structure of SDLT would be replaced with a ‘slice’ structure, with effect from 4 December 2014. Rather than successively higher rates of tax applying to the entire property price, the tax would be charged with a series of marginal rates applying only to the part of the part of the price that fell within each band. Provision to reform the tax was made by the Stamp Duty Land Tax Act 2015.

• In the 2015 Autumn Statement Mr Osborne announced that from 1 April 2016 higher rates of SDLT would be charged on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes. The higher rates would be 3 percentage points above current rates. The Government consulted on how the new regime would work, and confirmed the final design of the tax regime in the 2016 Budget. Provision to this effect was made by s128 of the Finance Act 2016.

• In the 2017 Autumn Budget on 22 November the Chancellor

Philip Hammond announced that for first time buyers, the price at which a property became liable for SDLT would be set at £300,000. The relief would come in with immediate effect, but would not apply for purchases of properties worth over £500,000. Provision for the new relief is included in the Finance (No.2) Bill 2017.

4.1 Autumn Statement 2014: the new ‘slice’ structure

Historically stamp duty land tax has been charged at a single rate on the whole purchase price of a property, with different rates for different value bands. When the price of a property exceeded the threshold for a higher rate of duty, tax would be charged at the higher rate on the whole value of the sale – the ‘slab’ basis – rather than the part of the price above the threshold – the ‘slice’ basis. The tax has been charged on the ‘slab’ basis for over forty years.67

In his Autumn Statement on 3 December 2014, the Chancellor proposed that with immediate effect the tax would be assessed on a

67 The rates of duty over the last fifty years are shown in, HM Revenue & Customs,

Stamp duty tax parameters, September 2013. Statistics on stamp duty receipts are collated on Gov.uk.

29 Extending home ownership: Government initiatives

‘slice’ basis, so that the rates of duty would apply only to the part of a property’s selling price that fell within each value band:

Stamp duty is charged at a single slab rate on the whole purchase price of a home. It means big jumps in tax when house values tip into a new band … If you buy a property worth £250,000, you pay £2,500 in tax. Buy a house worth just one pound more and you pay over £7,500, three times as much. And in recent years the burden of stamp duty has increased on low and middle income families trying to buy a new home, as prices have risen …

So I am today abolishing the residential slab system altogether. In future each rate will only apply to the part of the property price that falls within that band – like income tax. Here are the new marginal rates. You will pay no tax on the first £125,000 paid. Then 2% on the portion up to £250,000. Then 5% up to £925,000. Then 10% up to £1.5 million. Then 12% on everything over that. As a result stamp duty will be cut for the 98% of homebuyers who pay it … The whole reform represents a tax cut of £800 million per year. Only homes that cost just over £937,000 will see their stamp duty bill go up under this system – gradually to start with, rising to more substantial sums for the most expensive homes. A £5 million pound house will see its stamp duty rise from £350,000 to £514,000 – but of course, this is a charge that is only paid once, when the property is bought.

I can tell the House that these changes to stamp duty become effective from midnight tonight. Anyone who has exchanged contracts but not completed by midnight will be able to choose whether to pay under the old system or the new, so no one in the middle of moving house will lose out. The changes will apply in Scotland until the Scottish government’s new regime comes into effect next April. 68

The Autumn Statement illustrated the difference between the two rate schedules:69

68 HM Treasury, Chancellor George Osborne's Autumn Statement 2014 speech, 3

December 2014 69 Autumn Statement, Cm 8961, December 2014 p53

Number 03668, 14 December 2017 30

It was estimated that this reform would cost £395m in 2014/15, rising to £760m in 2015/16.70

At the time the Government argued that the ‘slab’ structure was distorting the housing market, disadvantaging first-time buyers, and encouraging tax avoidance:

The existing system of SDLT creates distortions in the housing market which can lead to unfair outcomes. SDLT is currently charged at a single rate on the whole purchase price of a property, with different rates for different value bands. This structure means that a disproportionate number of transactions occur just below the value band thresholds and it is unusual for property to be bought or sold at prices just above the threshold levels … For example, many properties are sold at £250,000, where SDLT is paid at a rate of 1% or £2,500, but it is rare for properties to be sold for £251,000, where SDLT would be paid at a rate of 3% or £7,530 …

As well as affecting the purchase price of property, the structure of SDLT limits transactions and mobility, and incentivises tax avoidance. As house prices have increased, more transactions have been brought into the scope of the tax and into the higher bands, increasing the upfront costs that buyers have to pay along with the purchase of their home. The government recognises the difficulties this causes, particularly for first-time buyers. 71

The reform to SDLT was generally welcomed.72 In its report on the Autumn Statement, the Treasury Committee agreed that the design of the tax was “significantly flawed” and welcomed this change, although it argued that non-residential SDLT should be reformed in the same way.73

In February 2016 HMRC published analysis of SDLT receipts which indicated that over 780,000 homebuyers had paid less tax on their house purchases in the year following this reform:

New analysis released by HMRC shows that the benefits of this reform have been felt across the country, with homebuyers saving an estimated total of:

• £24 million in the North East or £900 for the average house

• £90 million in the North West or £700 for the average house

• £74 million in the East Midlands or £500 for the average house

• £131 million the South West or £4,800 for the average house

70 op.cit. p64 (Table 2.1 – item 4). 71 op.cit. para 1.206-7 72 See, for example, the contributions made to the Second Reading debate of the

legislation to implement this measure: HC Deb 10 December 2014 cc908-22. 73 Autumn Statement, 13 February 2015, HC 870 of 2014-15, para 134. In Budget

2016 the Government announced a reform to SDLT on commercial property, including the move to calculating the tax on a ‘slice’ basis (Budget 2016, HC 901, March 2016 para 2.186).

31 Extending home ownership: Government initiatives

• £38 million in Wales or £800 for the average house. 74

4.2 Autumn Statement 2015: higher rates on additional properties

In his Autumn Statement on 25 November 2015, the Chancellor set out a series of measures to boost home ownership, saying, “spending reviews like this come down to choices about what your priorities are. I am clear: in this spending review, we choose … to build the homes that people can buy, for there is a growing crisis of home ownership in our country.” As one of these measures, Mr Osborne announced that from April 2016 the sale of additional residential properties, such as buy to let properties and second homes, would be charged higher rates of stamp duty.

The Chancellor argued that the buy to let sector had had a disproportionate impact on the housing market as a whole, and that many buyers had not been affected by earlier tax changes, announced in the Summer 2015 Budget, restricting tax relief on landlords’ mortgage costs:

The fifth part of our housing plan addresses the fact that more and more homes are being bought as buy-to-lets or second homes. Many of them are cash purchases that are not affected by the restrictions I introduced in the Budget on mortgage interest relief, and many of them are bought by those who are not resident in this country. Frankly, people buying a home to let should not squeeze out families who cannot afford a home to buy.

So I am introducing new rates of stamp duty that will be 3% higher on the purchase of additional properties, such as buy-to-lets and second homes. It will be introduced from April next year and we will consult on the details so that corporate property development is not affected. This extra stamp duty raises almost £1 billion by 2021, and we will reinvest some of that money in local communities in London and places like Cornwall, which are being priced out of home ownership. The funds we raise will help build the new homes. 75

The Chancellor’s plans were confirmed in the Autumn Statement:

3.70 Stamp duty land tax: additional properties – Higher rates of SDLT will be charged on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes, from 1 April 2016. The higher rates will be 3 percentage points above the current SDLT rates. The higher rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making significant investments in residential property given the role of this

74 HMT press notice, Homebuyers save hundreds of millions from stamp duty reform,

28 February 2016 75 HC Deb 25 November 2015 cc1371-2. Provision to restrict the tax relief on

landlords’ finance costs was made by section 24 of the Finance (No 2) Act 2015. For details see, Budget 2015, HC 264, July 2015 para 1.190-1, and, HMRC, Restricting finance cost relief for individual landlords: tax information & impact note, 8 July 2015.

Number 03668, 14 December 2017 32

investment in supporting the government’s housing agenda. The government will consult on the policy detail, including on whether an exemption for corporates and funds owning more than 15 residential properties is appropriate. The government will use some of the additional tax collected to provide £60 million for communities in England where the impact of second homes is particularly acute. 76

The Government’s consultation was published the following month, and gave a summary explanation of how the higher rates would apply:

The higher rates will not apply if at the end of the day of the transaction an individual owns only one residential property, irrespective of the intended use of the property ... If the purchaser has sold a previous main residence within 18 months before the day of the transaction and the transaction is a purchase of a new main residence, the purchaser will be considered to be replacing a main residence. Where an individual is replacing a main residence the higher rates of SDLT will not apply.

However, if the purchaser is not replacing a main residence (either because they have not sold a previous main residence within the last 18 months or the property being acquired is not a new main residence), the higher rates will apply. Recognising that there may be certain circumstances where purchasers may end up in difficult circumstances, some purchasers will be eligible for a refund of the additional SDLT paid …

The paper gave a number of examples of how the higher rates would, or would not apply, in certain circumstances – two examples are reproduced below:

Example 7: A owns both a main residence and a second home. She sells her main residence and purchases a new one. Although she has two properties at the end of the day of the transaction, she has replaced her main residence so the higher rates will not apply …

76 Spending Review & Autumn Statement, Cm 9162, November 2015 p121. This

consultation was launched on 28 December, and closed on 1 February 2016; full details are on Gov.uk.

The linked image cannot be displayed. The file may have been moved, renamed, or deleted. Verify that the link points to the correct file and location.

33 Extending home ownership: Government initiatives

Example 10: O is a buy-to-let investor with 10 residential properties in his portfolio. He also owns one residential property which he uses as his main residence. He decides to sell his previous main residence and purchase a new main residence. At the end of the day of the transaction, he owns 11 properties – his new main residence and his 10 buy-to-let properties. However, as he has replaced his main residence he will not pay the higher rates of SDLT.

It went on to discuss how the higher rates would apply where there was a gap between the original sale of a main residence, and the purchase of its replacement:

The government appreciates there may be circumstances where an individual sells a property which was their only or main residence, but there is then a period before they purchase their new main residence. The government does not want to disadvantage people in those circumstances. The government believes that there should be a maximum 18 month period between sale of a previous main residence and purchase of a new main residence for the purpose of determining whether the higher rates apply. The government is of the view that this is a sufficient period in the vast majority of cases. 77

As noted, the Government anticipated that home buyers would be entitled to a refund of the higher rates if they had succeeded in selling their first property within 18 months of buying their second. The consultation also asked for views on how ‘large scale investors’ might be exempted from the new rates.78

In its report on the Autumn Statement the Treasury Committee raised concerns as to the likely impact of this reform on the private rented sector, and recommended that the system for taxing property should be reconsidered:

The stamp duty surcharge is likely to reduce the supply of privately rented properties, and hence result in higher rents. Were it not to do so, it could not be claimed to support home ownership. Combined with other measures in the Summer Budget and Autumn Statement, particularly the reduction in tax reliefs available on mortgage interest payments, the profitability of buy-to-let investments will be sharply reduced. The uncertainty about how far the Government is prepared to go to discourage buy-to-let may act as a further deterrent to investment in this sector, and with it, act as an enduring constraint on the supply of privately rented properties.

Were the measures taken to curb buy-to-let to have a substantial effect, they would come at a cost to the wider economy. Access to a well-functioning, affordable housing market, including for private rented properties, has been widely recognised to be crucial to labour mobility, and hence the overall efficiency of the labour market. Labour, Conservative and Coalition governments have for decades recognised the crucial importance of maintaining confidence in the buy-to-let sector, perhaps aware of the damaging, unintended consequences of the heavy-handed

77 HM Treasury, Higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional

residential properties, December 2015 para 2.2, para 2.9 78 op.cit. para 2.11, 2.19

Number 03668, 14 December 2017 34

regulatory interventions by both Labour and Conservative governments of the 1950s and 60s. Any impediment to labour mobility will reduce employment, economic activity, and the economy’s long-run productive potential. 79

At the time of the 2016 Budget the Government published the outcome of this consultation, confirming that the new higher rates of duty on purchases of additional residential property would come in from 1 April 2016. No exemption would be granted larger investors, though the time period for refunds would be 36 months rather than 18 months.80

Guidance on the application of the new rates was published by HM Revenue & Customs alongside the Budget.81

Many respondents to the consultation had raised concerns about the impact of setting an 18 month time frame for home buyers moving their main residence, leading to two changes in these rules:

The government is clear that the higher rates of SDLT are not intended to impact those people who are moving from one main residence to another and are disposing of a previous main residence.

To offer protection in this instance, the consultation proposed that:

• purchasers with more than one property who dispose of a main residence, have 18 months to buy a new main residence before the higher rates apply assuming they retain their additional property.

• in the event that purchasers are subject to the higher rates of SDLT because they buy a new main residence before disposing of their previous main residence, they are entitled to a refund from the higher rates of SDLT if they dispose of their previous main residence within 18 months.

Many of the consultation responses discussed a wide range of hard cases which would benefit from a longer timeframe in both of these instances, owing to the additional difficulty in selling or buying a property. These difficult circumstances included those whose home has been affected by flooding, those going through divorce proceedings and those suffering from ill health.

The government has decided to increase the 18 month period to 36 months, for both of the scenarios set out above, as the most appropriate way to provide additional support. This change gives extra time to those who are moving home in challenging circumstances to rearrange their affairs.

The 36 month time period will commence from 25 November 2015 for those who had sold a previous main

79 Treasury Committee, Spending Review and Autumn Statement 2015, 12 February

2016, HC 638 of 2015-16, para 120, paras 122-3 80 Budget 2016, HC901, March 2016 pp38-9 see also, HMRC, SDLT: higher rates on

purchases of additional residential properties: tax information & impact note, 16 March 2016

81 This has been updated since the Budget: HMRC, Stamp Duty Land Tax: higher rates for purchases of additional residential properties, November 2016.

35 Extending home ownership: Government initiatives

residence prior to the Spending Review and Autumn Statement 2015, in order to provide additional transitional support.82

Subsequently the Government announced that it would amend these provisions, following concerns that the purchase of a house incorporating a ‘granny annexe’ would be subject to the higher rates of duty.83 In turn provision to set the new rates was debated at the Committee stage of the Finance Bill, where it attracted cross-party support.84

As noted, in its report on the 2015 Autumn Statement the Treasury Committee had expressed concerns about the impact that the new higher rates of stamp duty land tax might have on the property market. The Government published its response in October 2016, and on this question, said the following:

The Government has taken steps to attract billions of pounds of investment to build homes specifically for private rent. This includes a £3.5 billion debt guarantee scheme to support the delivery of new homes purpose built for private rent, and the Build to Rent fund. The Spending Review announced funding to deliver 400,000 affordable housing starts by 2021, including 50,000 affordable homes for rent and 10,000 Rent to Buy properties. Planning permission for over 250,000 homes was granted last year alone.

However, given a free choice, almost 90% of people say they want to own their home rather than rent [British Social Attitudes 2014]. Despite this, only 63% [English Housing Survey, 2013-14] of people in England owned their own home in 2013-14, and this figure has been falling since 2003. The government reforms of SDLT on additional properties, together with policies such as Starter Homes and Help to Buy Shared Ownership, are intended to support home ownership and first time buyers. The new higher rates of SDLT are expected to apply to less than 15% of property transactions per year, and are not expected to have an effect on rent levels.85

Further details on these two reforms to SDLT are in a Library briefing note.86

4.3 Autumn Budget 2017: relief for first time buyers

In his Budget statement to the House on 22 November the Chancellor Philip Hammond announced a new stamp duty relief for first time buyers, as one of a series of measures to boost homeownership:

82 Higher rates of SDLT on purchases of additional residential properties: summary of

consultation responses, March 2016 p6 83 HC Deb 11 April 2016 cc101-2 84 Public Bill Committee (Finance Bill), Fifth sitting, 7 July 2016 cc1149-155 85 The Government’s response to the conclusions and recommendations of the

Treasury Select Committee on the /Spending Review and Autumn Statement 2015 , 13 October 2016 p15

86 Stamp duty land tax on residential property, Commons Briefing Paper CBP7050, 23 June 2017.

Number 03668, 14 December 2017 36

One of the biggest challenges facing young first-time buyers is the cash required up front. We have put £10 billion more money into Help to Buy: Equity Loan to help those saving for a deposit, but I want to do more still. I have received representations for a temporary stamp duty holiday for first-time buyers, but this would only help those who are ready to purchase now and would offer nothing for the many who will need to save for years. So with effect from today, for all first-time-buyer purchases up to £300,000, I am abolishing stamp duty altogether …

Mr Deputy Speaker, to ensure that this relief also helps first-time buyers in very high price areas like London, it will also be available on the first £300,000 of the purchase price of properties up to £500,000, meaning an effective reduction of £5,000. That is a stamp duty cut for 95% for all first-time buyers who pay stamp duty and no stamp duty at all for 80% of first-time buyers from today.87

It is estimated that the new relief will cost £125m in 2017/18, rising to £560m in 2018/19.88 Details of this estimate were given in the Treasury’s Policy Costings document:

Stamp Duty Land Tax: abolish for First Time Buyers up to £300,000

This measure provides a full relief from stamp duty land tax (SDLT) for all residential property transactions by first time buyers of a transaction value equal to, or lower than, £300,000. Transactions above £300,000, and up to £500,000, benefit from this relief of £5,000, paying the normal marginal rates of 5% on the portion between £300,000 and £500,000. Transactions above £500,000 do not benefit from the relief. The measure will be effective from 22 November 2017.

The tax base : The tax base is all residential property transactions in England, Northern Ireland and Wales purchased by first time buyers. SDLT is being devolved to Wales in April 2018 and so the tax base does not include Welsh residential first time buyer transactions from 2018-19 onwards. The tax base is based on data from the Council of Mortgage Lenders.

Costing : The costing is estimated by applying the pre- and post-measure tax regimes to the tax base described above. The costing accounts for a behavioural response whereby the volume of affected transactions is increased due to a change in prices.

Exchequer impact (£m)

Areas of uncertainty The main uncertainties in this costing relate to the size of the tax base and the behavioural response.89

Further details of the scope of the relief were set out in a tax information & impact note published by HMRC:

87 HC Deb 22 November 2017 cc1059-60 88 Autumn Budget 2017, HC 57, November 2017 p28 (Table 2.1 – item 5) 89 Autumn Budget 2017: policy costings, November 2017 p6

37 Extending home ownership: Government initiatives

General description of the measure

From 22 November 2017 first time buyers paying £300,000 or less for a residential property will pay no Stamp Duty Land Tax (SDLT). First time buyers paying between £300,000 and £500,000 will pay SDLT at 5% on the amount of the purchase price in excess of £300,000, a reduction of £5,000 compared to the amount of SDLT they would have previously paid.

A first time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence.

First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates.

The relief must be claimed in an SDLT return. …

Detailed proposal

Operative date : This measure will have effect for transactions with an effective date (usually the date of completion) on or after 22 November 2017. This measure does not apply in Scotland. SDLT was devolved to Scotland on 1st April 2015. This measure will apply in Wales until 1 April 2018, when SDLT will be devolved to Wales.

Current law : The main SDLT legislation is at Part 4 of the Finance Act (FA) 2003. The current standard rates of SDLT for residential property are set out in table A of section 55 of the Act.

Proposed revisions : Legislation will be introduced in Finance Bill 2017-18 to provide relief for first time buyers. For first time buyers a new set of rates will be substituted at Table A of section 55(1B).

The revised rates and thresholds for residential property purchases worth £500,000 or less by first time buyers will be as follows:

This also gives details of the anticipated impact on both individuals, and businesses:

Impact on individuals, households and families

The measure will benefit first time buyers of residential properties where the purchase price does not exceed £500,000 saving purchasers up to £5000. Paying no SDLT reduces the upfront cost of buying a home for first time buyers. This measure is expected to lead to a small increase in house prices in the first year after implementation. This measure is not expected to have an impact on family formation, stability or breakdown ...

Impact on business including civil society organisations

This measure is expected to have a negligible impact on businesses. Around 40,000 lawyers and conveyancers, who complete SDLT returns on behalf of purchasers, are expected to incur negligible one-off costs to familiarise themselves with the SDLT rules for first time buyers. The process of automatically calculating the amount of SDLT due will not initially be fully

Number 03668, 14 December 2017 38

integrated into HM Revenue and Customs (HMRC) online systems. Where the first time buyer is being granted a new lease users will need to overwrite the tax due figure on the return. Users can use the calculator on GOV.UK to calculate how much SDLT is due. This is expected to involve negligible additional work. There is no impact on civil society organisations.90

In March 2010 the Labour Government introduced a stamp duty relief for first time buyers, doubling the nil-rate threshold which applied to this type of house purchase, up to £250,000. Notably when this relief was announced, the then Chancellor, Alistair Darling, made it clear that this would be a temporary relief, to apply to purchases between 25 March 2010 and 24 March 2012.91 In December 2010 the new Government confirmed that the relief would not be extended, citing analysis that had shown the relief “has been ineffective in increasing the number of first time buyers entering the market.”92

The Office of Budget Responsibility mentioned this earlier relief in its commentary on the Budget announcement, suggesting that “the main gainers” would be “people who already own property”:

The Government will introduce a new permanent relief for certain first-time buyers (FTBs) that will reduce stamp duty land tax (SDLT) to zero on properties up to £300,000. A rate of 5 per cent will be charged on the value between £300,001 and £500,000. But FTBs buying a property for £500,001 or more will not benefit from the relief at all, so a purchase at that price would be liable to £5,000 more in SDLT than one at £500,000.

Eligibility criteria match those of the postcrisis ‘stamp duty holiday’, although then the relief stopped at £250,000. HMRC published an evaluation part way through that holiday. It concluded that the majority of the value of relief had fed through to higher house prices and that it “has not had a significant impact in terms of improving the affordability of residential property for FTBs. It is estimated that most of the buyers who benefitted from the relief would have purchased property in its absence anyway (i.e. are deadweight).”a Confirmation that the relief would end was announced alongside the evaluation.

The costing of this measure uses recent mortgage data on FTBs. The proportion of FTBs in all new mortgage lending recently jumped from around 40 to over 45 per cent of all mortgages. This coincided with the introduction of the SDLT surcharge on additional property purchases in April 2016. As with the post-crisis holiday, we have assumed that the consequence of introducing the relief will be to increase house prices – in this case by around 0.3 per cent (see Box 3.1).

The effect on prices of a permanent relief should be greater than a temporary one of equivalent value because it will benefit future FTBs of a property, not just those who buy during the window in

90 Stamp Duty Land Tax: relief for first time buyers – tax information & impact note, 22

November 2017. HMRC has also published detailed guidance on the scope of the new relief for home buyers.

91 HC Deb 24 March 2010 c253 92 Autumn Statement Cm 8231 December 2010 p35. For details see, HM Revenue &

Customs, Evaluating the Impact of Stamp Duty Land Tax First Time Buyer’s Relief, HMRC Working Paper 13, November 2011

39 Extending home ownership: Government initiatives

which the temporary relief is available. The effect of this reduction in future SDLT costs would be expected to feed through into house prices – to be ‘capitalised’ – relatively quickly. Since the relief frees up FTBs’ savings to put towards higher deposits, these higher prices can be paid. We assume that a temporary relief would feed one-for-one into house prices, but a permanent one will have twice that effect.

On this basis, post-SDLT prices paid by FTBs would actually be higher with the relief than without it. Thus the main gainers from the policy are people who already own property, not the FTBs themselves. For some potential FTBs with smaller deposits, who are constrained by loan-to-value lending criteria, the relief will enable them to borrow a multiple of their SDLT saving, allowing them to buy properties that they otherwise could not afford – but more expensively. There are two other behavioural effects on the public finances that are worth noting. First, the relief will distort the housing market at prices around £500,000. Chart D shows the jump in the effective tax rate at that price. This will reduce receipts as FTB transactions bunch below the threshold. Second, it is likely that some FTB purchases will displace purchasers who would have paid more SDLT on the equivalent purchase.

a Bolster (2011): HMRC Evaluating the impact of Stamp Duty Land Tax First Time Buyer’s Relief.93

HMRC’s assessment of the impact of the 2010 relief was also mentioned by the Chartered Institute of Taxation in their response to the announcement:

The chancellor, Philip Hammond, announced in the Budget that the government would abolish Stamp Duty Land Tax (SDLT) for first-time house buyers on properties worth less than £300,000 effective today (22 November). His speech emphasised the difference between a temporary holiday and a permanent cut.

But the CIOT highlighted a November 2011 report from HMRC which evaluated the introduction of a temporary SDLT relief on transactions between March 2010 and 2012 initiated by the last Labour government. The evaluation concluded that the policy had little effect on improving the affordability of homes, with first-time house buyer transactions ‘around 0-2 per cent higher than they would have been in the absence of the relief’1. It also

93 Economic & Fiscal Outlook, Cm 9530, November 2017 pp128-9 (Box 4.3)

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suggested that ‘that the majority of the 1 per cent tax relief was capitalised in higher prices’.

The Institute recognises that the effect of a permanent cut in today’s conditions could be different from that of a temporary cut several years ago. But it called on the government to commit to an evaluation of the policy to ensure that it meets its policy intent of widening access to home ownership for young people in a cost-effective way.94

In the IFS’ post Budget presentation, IFS director Paul Johnson noted that house prices could be expected to rise from the introduction of the new relief, but that first-time buyers would still be better off:

The OBR has said that the price faced by first time buyers might rise twice as much as the saving in stamp duty. Stamp duty cuts do lead to price rises. The price rise can be bigger than the duty cut in part because properties are transacted multiple times and in part because of the leverage effect – if I pay £1 less in stamp duty I can put down £1 more deposit, meaning I can obtain a larger mortgage. So the £1 cut allows me to spend more than £1 more on a house.

But this does not mean first time buyers are worse off as a result. They are in general better off. Instead of paying, say, £100,000 for £98,000 worth of house plus £2,000 of tax they might be paying £102,000 for £102,000 worth of house. That’s a better outcome for them.95

In his presentation on the housing measures in the Budget, IFS researcher Robert Joyce also made the point that many first time buyers would benefit:

Winners and Losers

Many first-time buyers gain, *even if house prices rise by more than their stamp duty falls*

• Housing is an asset: if it’s more expensive to buy, it’s more valuable to hold; but clear gain from paying less stamp duty in process

• Some housing not otherwise in reach will become in reach - larger available deposits secure bigger mortgages

Some FTBs could lose if can’t secure the extra credit to cover higher prices – can’t buy housing they would otherwise have bought

• e.g. because constrained by their earnings level

Existing home-owners tend to gain, but can lose if want to downsize

A large group of young people would have been renting with or without this policy – they are not directly affected.96

94 CIOT press release, Government research casts doubt on effectiveness of stamp duty

cut, 22 November 2017 95 “Paul Johnson: opening remarks and summary”, Institute for Fiscal Studies Autumn

Budget analysis 2017, 23 November 2017 96 “Housing measures”, IFS Autumn Budget analysis 2017, 23 November 2017

41 Extending home ownership: Government initiatives

In a subsequent commentary piece Mr Johnson noted that by itself increasing the number of homes built would not necessarily lead to an increase in home ownership if those additional properties were purchased by existing home owners. From this perspective the relief for first time buyers could be seen along with other tax measures in the last two years to “tilt the playing field towards younger buyers.”97

Initial reactions from the industry appear to have been relatively positive. The Times quoted Lucian Cook, director of residential research at Savills, as saying, “this is very much an ‘every little helps’ measure. It will most benefit people in London and the southeast. It’s not huge in the level of their deposit but it takes the edge off it.”98 The Financial Times commented, “property experts said the reform was likely to boost market activity by reducing the upfront costs of first time buyers, but would not change the underlying issue of high deposit sizes in expensive areas.”99

97 “If we’re serious about helping young buyers, hard choices lie ahead”, Times, 27

November 2017 98 “Cut to stamp duty ‘will push up prices’”, Times, 23 November 2017 99 “Helping hand for first time buyers will cost £560m”, Financial Times, 23 November

2017; see also, “Stamp duty move ‘a drop in the ocean’”, Financial Times & “Plan for housing is not exactly radical”, Guardian, 23 November 2017

Number 03668, 14 December 2017 42

5. London Section 2.1 of this paper provides information on the Help to Buy London scheme and section 2.8 covers the Starter Home initiative under which new homes will be sold at a discount of up to 20% off the open market value, up to a maximum of £450,000 in London.

The Greater London Authority’s First Steps to home ownership website brings together the main low-cost home ownership programmes available to Londoners including, Rent to Save, shared ownership and equity loan products.

The Mayor of London’s draft Housing Strategy (September 2017) contains the following commitment:

Building primarily on the successful shared ownership model, the Mayor will support the increased delivery of affordable home ownership aimed at Londoners who cannot afford to buy on the open market. This will include:

i supporting delivery of London Shared Ownership homes through the Affordable Homes Programme;

ii working with the main shared ownership providers to introduce a ‘London Charter’ to standardise approaches to service charges; and

iii supporting other types of affordable home ownership, as long as the homes are genuinely affordable to Londoners whose household incomes fall under £90,000.100

The public consultation on the draft Housing Strategy closed on 7 December 2017; the final Strategy will be published in 2018.

100 Mayor of London, London Housing Strategy: Draft for Public Consultation,

September 2017, Policy 4.1C

43 Extending home ownership: Government initiatives

6. Wales, Scotland and Northern Ireland

The devolution of housing policy to Scotland, Wales and Northern Ireland is resulting in increasingly diverse approaches in certain areas, in particular the Right to Buy policy.101

Scotland The Scottish Government has a Low-cost Initiative for First Time Buyers (LIFT) which brings together several schemes including:

• the New Supply Shared Equity scheme to allow first time buyers to buy a new build property either from a housing association or a private developer; and

• the Open Market Shared Equity scheme to allow first time buyers to buy a property on the open market.

The Cabinet Secretary for Social Justice, Communities and Pensioners’ Rights, Mr Neil, launched the Help to Buy (Scotland) Affordable New Build and Help to Buy (Scotland) Smaller Developers schemes on 21 January 2016.

Information on these schemes can be found on the Scottish Government’s website.

The Right to Buy scheme ended for council and housing association tenants in Scotland on 31 July 2016.102

Wales The Welsh Government had planned to launch its mortgage guarantee scheme NewBuy Cymru on 3 June 2013; however, press reports in April 2013 indicated that key stakeholders had withdrawn from the scheme in response to the Westminster Government’s announcement of Help to Buy. Subsequently, Help to Buy Wales was launched on 2 January 2014. In October 2017 the Welsh Government confirmed that 5,838 homes had been purchased under Help to Buy Wales since its introduction.103 Funding has been provided to support the development of 6,000 additional homes between 2016 and 2021.104

The Welsh Government also launched a HomeBuy Scheme in 2014:

It is operated by Registered Social Landlords (RSLs) but is only available where the local authority decides that it is a priority for the use of Social Housing Grant. It is intended to assist people who would otherwise require social housing. It is not intended for people who can afford to buy a suitable home without assistance

101 For further information see Commons Library briefing paper CBP07174:Comparing

the Right to Buy in England, Scotland, Wales and Northern Ireland 102 Scottish Government webpage on Council Housing [Accessed 7 December 2017] 103 Welsh Government, Statistics: Help to Buy - Wales: Shared Equity Loan Scheme, 26

October 2017 104 Welsh Government, Help to Buy – Wales, last updated 26 April 2017 [Accessed 12

December 2017]

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or those who are adequately housed but who wish to move to a more expensive location.

Where the scheme is available an RSL can provide an equity loan for an agreed percentage (usually 30% but up to 50% in some areas) of the purchase price. The purchaser funds the balance through a conventional mortgage and savings. No interest is paid on the loan, but when the loan is repaid the amount repayable will be the same agreed percentage of the value of the property at that time. The loan can be repaid at any time but must be repaid when the property is sold.

There is also a Rent First scheme.

The Abolition of the Right to Buy and Associated Rights (Wales) Bill will end the Right to Buy, Preserved Right to Buy and Right to Acquire for tenants of local authorities and registered social landlords in Wales. Welsh Assembly members approved the Bill on 5 December and it will now go forward to Royal Assent.

Provision in the Bill allows at least one year after Royal Assent before final abolition on existing properties. But to encourage investment in new homes, the rights will end for homes that are new to the social housing stock, and therefore have no existing tenants, two months after Royal Assent.105

Northern Ireland Information on low-cost home ownership schemes in Northern Ireland can be found on the indirect.gov website.

105 The Welsh Government, Abolishing the Right to Buy to become law, 5 December

2017

45 Extending home ownership: Government initiatives

7. Comment on the impact of home ownership schemes

Labour’s schemes: boosting supply or house price inflation? Prior to the market downturn, one of the key concerns expressed by housing commentators in relation to the Labour Government’s home ownership initiatives was that the promotion of subsidised shared ownership/equity schemes might further inflate house prices if unaccompanied by an overall increase in housing supply. Dan Kemp, senior fund research analyst at stockbroker Christows, said:

Far from being a boon to those in need, it is actually an encouragement to invest in an already inflated asset class, which could have disastrous longer-term effects on the housing market, and in particular on first-time buyers. 106

An inquiry into low-cost home ownership assistance by the Public Accounts Committee published in March 2007, A foot on the ladder, acknowledged the potential impact of subsided shared ownership schemes on the market and recommended improved modelling by the Department, particularly focused on local markets.107 In response, DCLG said there was no evidence that low-cost home ownership assistance was increasing demand in property “hot spots” but agreed that there was value in understanding the impact of these schemes on local property prices. The Department said it would consider ways in which this could be done.108

The Labour Government made a commitment to increase the supply of housing. Homes for the Future, the Housing Green Paper published in 2007, set out a target to deliver 2 million homes by 2016 and 3 million by 2020.109 However, the onset of the credit crunch and the drop in mortgage availability impacted on these house-building targets as the building industry scaled back the number of homes in construction.110 Reports at the time indicated that the shared ownership element of the National Affordable Housing Programme was at risk, as associations were finding it more expensive to raise the necessary private finance.111

In July 2008 the Housing Minister reported on progress against the key targets set out in the 2007 Housing Green Paper:

• almost 200,000 additional homes in 2006-07 – an increase of more than 50 per cent compared with 130,000 in 2001-02

106 ‘Building on Brown’s cheap mortgages plan,’ Financial Times Money, 28 May 2005 107 Committee of Public Accounts, Nineteenth Report of 2006-07, HC134, March 2007 108 Cm 7077, May 2007, p44 109 CLG, Cm 7191, p7 110 BBC News, Housing decline hits construction, 31 March 2008 111 The Observer, “Credit crunch hits affordable homes plan, 13 April 2008

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• provisional figures show that around 30,000 social rented homes were delivered in 2007-08

• around 24,000 households were helped into low-cost home ownership in 2007-08

• identification of suitable surplus public sector sites with capacity for some 140,000 homes

• 104 out of 150 Local Area Agreements including housing supply as a priority, 102 with Affordable Housing as a priority. 112

At the same time, the Minister acknowledged the difficulties facing the housing market and set out the Government’s response. Information on most of the Labour Government’s initiatives can be found in Facing the housing challenge: action today, innovation for tomorrow.113 The 2009 Budget contained measures aimed at producing a “robust supply response.” Specifically, the Budget announced measures intended to support the property market by stimulating supply and boosting capacity in the construction industry: £605m in funding was expected to deliver an additional 10,000 homes in England.

On shared equity schemes, the Chartered Institute of Housing (CIH) expressed support for measures to help individuals realise their aspirations to own their own homes and to enable more people to share in the equity of their homes, but did not want this to take place at the expense of delivering more rented homes:

CIH will not support proposals which switch resources for much needed new social housing to pay for Social HomeBuy discounts. 114

The National Housing Federation welcomed the Labour Government’s commitment to affordable home ownership but said:

Mortgage subsidies are not a substitute for more investment in new homes…the Government needs to tackle a range of housing problems. With 100,000 families homeless and in temporary accommodation and a government pledge to reduce that number by 2010, it is vital that there is no substantial diversion of public funds away from building affordable rented homes. 115

Equity loan schemes: additionality and value for money A number of housing bodies welcomed the announcement of the FirstBuy scheme by the Coalition Government, for example, Sarah Webb, then Chief Executive of the CIH said:

Our housing market is still in intensive care but this measure to give first time buyers access to a sizeable deposit as an interest free loan is a welcome adrenaline boost. We are currently building fewer than half of the homes we need and anything the

112 CLG, Facing the housing challenge: action today, innovation for tomorrow, July

2008 113 ibid 114 CIH Press Release, 25 May 2005 115 ‘Building on Brown’s cheap mortgages plan,’ Financial Times Money, 28 May 2005

47 Extending home ownership: Government initiatives

government can do to support new house building and support construction sector jobs is welcome.116

Commentators noted that the scheme was closely modelled on Labour’s HomeBuy Direct scheme but offered less generous support.117 Notes of caution were sounded over the desirability of encouraging first-time buyers into a market at a time when some economists were predicting substantial house price falls to come.118 A specific downside of the scheme was identified as its focus on new build properties; these properties suffered substantial reductions in value during the market downturn. Critics argued that if house-builders could not sell their newly built properties they should reduce the prices, rather than having values “propped up artificially” by the Government.119 Some feared that the scheme would enable lenders to offer mortgages to first-time buyers by taking on significantly less risk – possibly making them less likely to lend to those who did not qualify for FirstBuy.

FirstBuy was projected to assist some 27,000 purchasers but in its first 18 months (up to September 2012) it resulted in less than 7,000 transactions.120

The extension of FirstBuy (Help to Buy: equity loan) to existing owners, announced in the 2013 Budget, was welcomed as recognition of the fact that problems are not exclusive to first-time buyers. Again, the CIH emphasised the importance of measures to increase housing supply:

CIH believes that measures to increase the supply of mortgages without parallel measures to increase the supply of new homes will run the risk of driving house price inflation, further exacerbating an affordability crisis in the housing market. CIH recommends that government monitor the impact of these measures carefully to make sure they are generating additional housing supply and not just driving up house prices. 121

The National Audit Office (NAO) published a report on the design, implementation and outcomes of the Help to Buy equity loan scheme in March 2014.122 The NAO noted strong early demand for equity loans under the scheme with 12,875 completions in the first nine months.123 Successes in terms of improving access to mortgage finance are recorded but evidence of whether the scheme represents value for money was, according to the NAO, less clear:

The DCLG expects to recoup its investment in cash terms after around 15 years, and to go on to recoup £4.8 billion – more than it is investing in the scheme. This depends, however, on when buyers redeem their equity loans and the value of the Department’s stake at the time. During this time, cash flow is

116 CLG Press Release, 24 March 2011 117 Money Guardian, “Another first step on the ladder,” 26 March 2011 118 The Times, Who really benefits from FirstBuy?”, 26 March 2011 119 ibid 120 DCLG Live Table 1012: Affordable Housing Starts and Completions 121 CIH Budget Briefing 2013 122 NAO, The Help to Buy equity loan scheme, March 2014 (HC 1099) 123 By 2 January 2014 DCLG was reporting that 20,000 households had been assisted

with an equity loan.

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likely to vary between years and the impact of this in some years could be unaffordable for the Department. Both the Department and the Agency have used their previous experience to develop a credit risk model to monitor this situation.

The Department estimates that the scheme’s cost in today’s terms is £494 million. For the economic benefits to exceed the costs, the Department calculates that over a quarter of sales under the scheme would have to lead to a new home being built. Assessing whether this happens is therefore crucial to deciding whether the scheme is value for money. 124

The Chair of the Public Accounts Committee at that time, Margaret Hodge, commented on the NAO’s findings:

I am shocked that the Department for Communities and Local Government is investing up to £3.7 billion without a clear understanding of how Help to Buy will impact the property market. The Department needs to get a handle on whether home buyers would have made purchases, and developers built the houses, anyway. It is simply unacceptable that there is not a coherent plan to evaluate Help to Buy or to even understand its impact on other housing initiatives.

Also, you have to ask why the Department thinks that providing loans to people who are buying homes worth £600,000 is actually benefitting those most in need. To provide value for money, the Department and the Agency need to reduce and manage the risks to taxpayers' money.

I look forward to discussing the matter with the Department when it appears before us on Wednesday 2 April 2014. 125

The Public Accounts Committee’s report into Help to Buy equity loans (June 2014) found that DCLG had implemented the scheme effectively but had not carried out a full assessment of the policy or alternative options prior to its introduction. This is contrary to HM Treasury guidance. Margaret Hodge also said that the Government had not demonstrated the scheme’s value.126

February 2016 saw the publication of independent research commissioned by DCLG into the Help to Buy equity loan scheme. The researchers found that 82% of buyers would not have been able to buy a home without its support, while 43% additional new homes had been built as a result of the scheme:

The evidence assembled in this report suggests the Help to Buy Equity Loan scheme, introduced in April 2013, has been an important intervention in the housing and mortgage markets in England. Whilst it is a policy that has attracted some criticism from analysts, politicians and the media, the empirical evidence would support the view that it has provided an important stimulus to generate a not insignificant increased output in the housebuilding sector as well as a stronger recovery in the mortgage market

124 NAO, The Help to Buy equity loan scheme, March 2014 (HC 1099) 125 Statement by Chair of the Public Accounts Committee, March 2014 (accessed on 8

April 2014) 126 Public Accounts Committee, Help to Buy scheme yet to show value for money, 18

June 2014

49 Extending home ownership: Government initiatives

along with higher confidence amongst all these players and consumers.

Moreover, in terms of additionality, and the specific contribution of the policy to housing output over and above what might have happened anyway through the general upturn in the economy and the housing market, we can evidence that it increased demand and, through that, supply rose above what it would otherwise have been. We estimate that since introduction it has generated 43% additional new homes, over and above what would have been built in the absence of the policy, equivalent to contributing 14% to total new build output to June 2015. 127

On publication of the Building Societies Association’s (BSA) Q1 results of its quarterly consumer survey, Property Tracker, on 10 March 2016, the BSA said that “government schemes are well-received by aspiring homeowners.” The press release went on to emphasise the need to boost the supply of affordable homes:

This quarterly consumer survey shows that those who aspire to buy with a mortgage are most commonly aiming for a 10% deposit (25%). A slightly smaller group (22%) are aiming to save over 25% of the cost of their first home. A quarter of people think that they will raise their required deposit within a year, three-quarters within 5 years.

While Government schemes are being viewed on balance positively with only 8% of people unaware of them, their existence highlights that there is still a significant lack of new house building. Government schemes are helping to fuel buyer demand and aid the financial ability to buy, but do not address the underlying chronic lack of affordable homes, which is acute in some areas like London.128

Morgan Stanley published a report entitled,”The help to buy premium – and its unintended consequences”, which attracted a good deal of media attention in October 2017.129 Morgan Stanley’s analysis of new-build house prices before the introduction of Help to Buy equity loans in 2013 and ‘second hand’ houses, reportedly found that the premium paid for new-build had undergone a significant increase. The Guardian commented:

There has always been a small premium for new-build; people will pay extra for spanking-new kitchens and bathrooms. But since 2013, that premium has rocketed. “The divergence between new-build and second-hand prices is higher than it’s been since records began,” says the report.

It says that the price of new-build has outstripped second-hand by 15% since the start of help to buy. “We are now around 5% points away from the level at which new-build prices have diverged by the full amount of the government’s equity loan (20% of house price across England).”130

127 Ipsos MORI/London School of Economics, Evaluation of the Help to Buy Equity Loan

Scheme, February 2016 128 BSA, Government schemes improve prospects for home buyers, 10 March 2016 129 The report is not available online. 130 The Guardian, “Help to Buy has mostly helped house builders boost profits, “ 21

October 2017

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Morgan Stanley reportedly conclude that the scheme has helped drive supply, but go on to say that the “figures provide ammunition for critics who suggest it has pushed up prices, rather than making them more affordable.”131 There is some concern that the new-build market is increasingly reliant on the scheme and that the main beneficiaries are the large developers.

The Government’s announcement in autumn 2017 of an additional £10 billion for the Help to Buy equity loan scheme 132 received a luke-warm reaction from the housing sector. Inside Housing magazine reported that the expansion of the scheme was regarded by some commentators as a symbol of failed housing policy, whilst others considered that the additional funding would be better directed at housing policies to help people on low incomes.133 The Adam Smith Institute and the charity Shelter have reportedly criticised the expansion of the scheme which they consider will drive up house prices.134

Mortgage guarantees: contributing to a house price bubble? The announcement of the NewBuy Guarantee Scheme was met with concerns around its potential to result in house price inflation. A spokesperson for PricedOut, the pressure group for people who cannot afford to get on the housing ladder, reportedly said that the scheme:

...does not tackle the main problem, which is that relative to incomes, house prices are too high. The fact that the government has promised lenders that it will cover up to 5.5 per cent of each loan if the borrower defaults – and each housebuilder must guarantee the first 3.5 per cent of each loss – allows housebuilders to raise their prices. 135

The Council of Mortgage Lenders welcomed the NewBuy Guarantee Scheme in broad terms but advised prospective users to proceed with caution – stressing long-running concerns over how newly built homes are valued:

Some new-build properties, include an extra premium on the sale price that can reduce as soon as someone moves into the property. 136

Some commentators dismissed the NewBuy Guarantee as a “gimmick” that would assist developers more than prospective buyers. Mortgage brokers pointed out that 95% mortgages were already available with comparable interest rates to those on offer under the scheme.137 NewBuy was projected to assist 100,000 purchases over three years but

131 Ibid. 132 HM Treasury, Autumn Budget 2017, HC587, 22 November 2017, para. 5.29 133 ‘Scepticism for Help to Buy expansion’, Inside Housing, 6 October 2017 [Subscription

only] 134 ‘Theresa May promises £10bn Help to Buy boost’, BBC News, 1 October 2017 135 Financial Times, “Fears over first-time buyer homes plan, 13 March 2012 136 CML NewBuy advice bulletin 137 The Telegraph, “Home-buying scheme dismissed as gimmick,” 12 March 2012

51 Extending home ownership: Government initiatives

only 1,522 had been achieved by 31 December 2012.138 Increased take-up was reported in early 2013.139

The Help to Buy: mortgage guarantee scheme (Budget 2013) was welcomed in general terms. The CIH’s Budget Briefing referred to continued “mortgage rationing” as the source of the problem:

CIH believes that mortgage rationing remains a key problem in the housing market. OBR notes that to date, although government’s Funding for Lending (FLS) announced in August 2012 has improved bank-lending conditions, there is little evidence that this is making a wider impact on mortgage lending behaviour. Additional measures to support mortgage lending announced through the Help to Buy scheme are welcomed.140

The Treasury Select Committee took oral evidence on the 2013 Budget from John Cridland, Director General of the CBI, and Paul Smee, Director General of the Council of Mortgage Lenders on 25 March 2013. They were questioned on the possibility of the Help to Buy Scheme leading to another ‘housing bubble:’

John Cridland: The CBI proposed similar measures to Help to Buy in our representations for the Budget as a confidence-boosting measure. I agree with Paul. We need to look at this in the context of a growth strategy and what it is legitimate for the Government to do in the short term that can have a positive effect on both consumer and business—in particular, small builder—confidence. I think it kick-starts confidence. I am disappointed in some of the negative comments I have heard about the proposals, because they are out for consultation and these matters can be addressed in detail. But the principle that everybody gains—householders, builders and the general business community—if we get more houses built and sold quickly, is a given that has strong support across the business sector.

Clearly, there are dangers in the long term of asset price bubbles, but we are a long way from that. The problem at the moment is, in my judgment, primarily on the consumer side a lack of confidence and, secondly, an inability to get hold of mortgages in ways that they can handle. On the builder side it is thin balance sheets and the inability of more builders to build houses at this time. The two schemes address both of those concerns. 141

Giving evidence the following day, Steve Nickell of the Office for Budget Responsibility (OBR) cast doubt on these claims:

The key issue is, is it going to just drive up house prices?

By and large, in the short run, the answer to that is yes. But in the medium term, will the increased house prices stimulate more house building? Our general answer would probably be a bit, but the historical evidence suggests probably not much. 142

138 DCLG, NewBuy Guarantee Scheme Statistical Release, 26 February 2013 139 Inside Housing, “NewBuy tops 3,000 sales,” 1 February 2013 140 CIH Budget Briefing 2013 141 Uncorrected transcript of oral evidence to the Treasury Select Committee, 25 March

2013 142 Uncorrected transcript of oral evidence to the Treasury Select Committee, 26 March

2013

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The Committee’s report was published in April 2013 – it drew attention to evidence comparing Help to Buy with schemes in the USA prior to the financial crisis:

Dominic Lawson argued that whilst there was “certainly a difference of scale [...] the thinking behind it is identical: to encourage lenders to give mortgages to people they would otherwise regard as having insufficient capital as security”. Patrick Jenkins, banking editor of the Financial Times, has also compared Help to Buy: mortgage guarantee with the US schemes. He said that “it is as though the chancellor has learnt no lessons from the financial crisis itself. After all, the whole blow-up stemmed from years of excessive US subprime lending to people who could not afford it, and was aided and abetted by the very existence of a government-sponsored structure in Fannie and Freddie that gave the banks excessive scope to expand business”. Mr Jenkins went on to argue that Bill Clinton’s 1995 National Homeownership Strategy now looked “like an eerie precursor of Mr Osborne’s new plan.” 143

The Select Committee expressed concern over:

• the potential for any losses under the scheme to be off-set by the commercial fee paid by lenders;

• the implications of the Treasury having a “financial interest in maintaining house prices to limit losses to the taxpayer”;

• the risk of lenders exercising reduced levels of forbearance resulting in increased repossessions, falling house prices and losses for the Treasury on those mortgages that it has guaranteed.144

The Committee concluded that it was “unconvinced” by the Chancellor’s assertion that the mortgage guarantee scheme would trigger a supply response in the short term:

In the longer-term there may be an effect. This would be likely in a well-functioning market. However, the housing market contains severe supply constraints. The Government argues that new supply will be encouraged by the equity loan component of First Buy. This may be the case, but the size of the equity loan scheme, which at £3.5 billion, is dwarfed by the size of the mortgage guarantee scheme—which will make available up to £12 billion of government guarantees, sufficient to support £130 billion of high loan-to-value mortgages. Overall, though, if the Government’s priority was housing supply, its housing measures should have concentrated there.145

The report set out a number of questions concerning Help to Buy which, in the Committee’s opinion, “require answers to allay concerns that the scheme may have unintended and unwelcome consequences.”146

In May 2014, the Governor of the Bank of England, Mark Carney, said the Help to Buy mortgage guarantee could distort the mortgage market and may be encouraging a return to risky home loans. Mr Carney also

143 Treasury Select Committee Ninth Report of 2012-13, Budget 2013, HC 1063, para

146 144 Ibid., paras 156-160 145 Ibid., para 171 146 Ibid., para 182

53 Extending home ownership: Government initiatives

described the overheating property market as “the biggest risk to financial instability.”147 Similar comments were also made at that time by economists who had previously supported the Help to Buy mortgage guarantee scheme but who now said “with the economy growing and unemployment falling rapidly, we believe that such stimulus is no longer needed.”148

In March 2015, the Government said that the Help to Buy mortgage guarantee had not contributed to house price inflation:

Figures for the mortgage guarantee scheme also show completions have been least concentrated in regions where house price growth is highest. In London the scheme makes up just 1.3% if all mortgage lending compared to an average of 3% across the country. 149

In September 2016 the Chancellor of the Exchequer confirmed, in a letter to the Governor of the Bank of England, that the Help to Buy mortgage guarantee scheme had achieved its aim of increasing the availability of high loan to value mortgages and would therefore close as planned.150 The scheme closed to new loans on 31 December 2016.

Well targeted? Questions have been raised in the past about how well targeted low-cost home ownership assistance has been. The Public Accounts Committee identified a need for housing associations and local authorities to improve the quality of their waiting list information “so that they are better able to target help towards those in housing need who can afford to part-purchase.”151 DCLG responded that since April 2006 waiting lists for low-cost home ownership assistance have been held by HomeBuy Agents who carry out “robust eligibility and affordability checks.”152

An increase in ‘marginal’ home ownership? A further concern of housing organisations is that measures to increase home ownership amongst ‘marginal’ owners on lower salaries and in relatively unstable employment should be accompanied by measures to provide improved financial protection for these owners.153 Unemployed home owners are not entitled to Housing Benefit to cover their mortgage repayments and may only become entitled to assistance with meeting the interest payments after a certain period of

147 “Help to Buy is a threat to recovery, Banks warns”, The Times, 19 May 2015 148 “Former backers of Help to Buy tell Osborne it’s time to pull back”, Financial Times,

11 May 2014 149 Gov.uk. Help to Buy: Helping 88,000 buy a new home, 5 march 2015 150 HM Treasury, Correspondence - Help to Buy: mortgage guarantee scheme review

2016, 29 September 2016 151 Committee of Public Accounts, Nineteenth Report of 2006-07, HC134, March 2007 152 Cm 7077, May 2007, p46 153 This applies particularly to those who may qualify under the Social HomeBuy

Scheme. See Promoting home ownership at the margins, Kim McKee, 2010

Number 03668, 14 December 2017 54

unemployment.154 In 2004 only 22.5% of home buyers took out mortgage payment protection insurance although, according to the Council of Mortgage Lenders, around 60% of buyers have some sort of protection either from employers or other insurance.155

It is certainly the case that home owners are not universally wealthy; a study published by the Joseph Rowntree Foundation in 2003 found that half of all people living in poverty in Britain were home-owners.156 At a Capita conference in September 2005 entitled, Extending Home Ownership in England, Marianne Hood, Chair of the National Housing Forum, emphasised that sustainable home ownership requires owners to be able to afford the cost of living in their homes not just the cost of buying them. These issues are gaining in significance as there have been some reports of a minority of shared owners living in housing association properties facing mounting debt problems as a result of the credit crunch157 while there are more longstanding issues associated with the affordability of service charges payable by shared owners in blocks of flats.158

Dr Ian Shepherdson, a leading economist and commentator on the US economy, identified unrealistic expectations for home ownership as one of the major causes of instability in the housing market in the USA and a major contributor to the economic downturn. Speaking at the Chartered Institute of Housing’s 2008 annual conference, Dr Shepherdson pointed to the USA’s sustained low levels of interest rates, especially between 2002 and 2005, and indiscriminate lending, as the major causes of pushing millions of American citizens from rented accommodation into home ownership – an option previously unobtainable and, in Dr Shepherdson’s view “ultimately an inappropriate option for the vast majority.” Dr Shepherdson highlighted that for over 30 years US home ownership levels had remained relatively static at around 64 per cent. By 2005 this had grown sharply to nearly 70 per cent – a growth fuelled by sub-prime lending.

The CIH’s then Chief Executive, Sarah Webb, spoke of the UK’s “obsession” with home ownership:

Whilst it is important that we help people to fulfil their aspiration for home ownership, the evidence clearly shows us that the state, lenders and individuals must take a responsible stance and make sure they take the right housing choice for them.

We need to support people to make the best – not the worst choice. If you are one of the 45,000 people that get their first

154 See Library Briefing Paper SN06618, Support for Mortgage Interest (SMI) scheme for

more information on the the assistance available for certain households with their mortgage interest payments.

155 ‘Prescott leaves first time buyers in the dark’, The Sunday Telegraph, 30 January 2005

156 Home ownership and Poverty in Britain, JRF Findings January 2003 Ref: 113 157 Inside Housing, “Talks held over shared owners’ mounting woes”, 25 April 2008 158 Inside Housing, “Charges making state schemes too expensive”, 11 April 2008

55 Extending home ownership: Government initiatives

home repossessed this year then owner occupation won’t have proved to be the route to personal wealth. 159

How affordable is shared ownership? Some commentators have questioned whether shared ownership really represents an affordable option in some parts of England. The Association of London Government set up a taskforce to look at the Capital’s housing problems in 2004. Reports indicated that the taskforce found shared ownership at that time to be out of reach of all but the most affluent key workers:

One of its main findings is that key worker shared ownership accommodation is unaffordable in many London boroughs. It found properties on offer for up to £250,000 in some central locations.

Even on a shared ownership basis such prices would require a household income of around £50,000 to be affordable.

The ALG's policy team is working on a system for assessing affordability which suggests that homes would need to be around £120,000 to be within reach of key workers.

It is concerned that the grant is being so stretched to increase the number of homes built nationally that key workers will be priced out of the government's scheme in property hot spots. The taskforce will tell ministers that more grant will be needed to go into schemes in areas with high land prices, if key workers are to be helped. 160

The National Housing Federation published an assessment of the affordability of shared ownership in London as part of its March 2013 shared ownership week:

• The average price of a shared ownership home bought in London is £240,943.

• Shared owners typically buy a 39% share in their home up front – so, the deposit needed is on average £18,794.

• The average monthly mortgage and rent costs for shared ownership in London is £857.

• Shared ownership buyers in London have an average income of £33,460.

Research carried out by the Cambridge Centre for Housing and Planning Research (May 2012) found that out of 145,000 shared ownership purchases in England since 2001 only 27,908 had staircased up to full ownership. Limiting factors were identified as:

• transaction costs; • unavailability of mortgage finance; and • incomes failing to keep pace with house prices.161

159 CIH Press Release, “Home ownership drive unrealistic”, June 2008 160 ‘Homes still beyond key workers’ means’, Society Guardian, 7 June 2004 161 CCHPR, Understanding the second hand market for shared ownership properties,

May 2012

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In Homes for forgotten families (August 2013) Shelter made the case for the development of a mainstream shared ownership market which would meet the needs and aspirations of low to middle income households and which would offer:

• A simple and comprehensible consumer product.

• A buying, selling and owning experience aligned with their expectations.

• Long-term commitment from policy-makers.

• A scalable offer that contributes to resolving the shortage of homes by increasing the supply of new homes.162

There is an argument that, in a time of market uncertainty, Government funded shared ownership schemes represent a relatively “safe bet” for lenders as they are insured against default for most of the value of the loan under a mortgagee protection clause. However, the National Housing Federation has criticised lenders for refusing to offer mortgages to first-time buyers for shared ownership schemes because they are considered as risky as sub-prime mortgages.163 Landlords urged the Financial Services Authority (FSA) to change mortgage rules to encourage shared ownership schemes in their responses to its consultation on mortgage lending rules.

Starter Homes The starter homes provisions in the Housing and Planning Act 2016 were subject to much debate and challenge as the legislation progressed through Parliament.

A broad range of organisations have expressed concerns about starter homes. Issues that have been raised include: the importance of supplying a mix of housing tenures to provide for people on lower incomes; the need for flexibility to reflect housing needs in different areas; the potential reduction in the delivery of other types of affordable housing; the extent to which starter homes will be genuinely affordable; and the impact of starter homes on local housing markets.

The Housing White Paper, published in February 2017, marked a shift in the Government’s housing policy from a strong focus on starter homes, to delivering a wider range of affordable housing.

Commentators welcomed the Housing White Paper’s new focus on a wider range of housing tenures, and the Government’s decision not to implement a minimum statutory starter homes requirement on residential developments.

162 Shelter, Homes for forgotten families, August 2013, p4 163 Public Finance, Banks refuse mortgages on low-cost homes, 29 May 2009

57 Extending home ownership: Government initiatives

The Government consulted on the proposals in the Housing white paper between 7 February and 2 May 2017, and is currently analysing feedback.

The Commons Library briefing paper Starter Homes for First-Time Buyers (England) (7643) provides further information.

BRIEFING PAPER Number 03668, 14 December 2017

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