What is the Government doing to save that endangered species, the first-time
buyer? Confirmed sightings of this elusive beast are at their lowest level
since 1980, according to the Halifax, Britain's biggest provider of
mortgages to this dwindling group. They have been done for by a lethal
combination of high house prices and the credit crunch.
A succession of Labour housing ministers has responded to soaring prices by
devising a raft of hopelessly complex subsidies intended to help
cash-strapped buyers on to the housing ladder. Partly because of this
complexity and partly because eligibility has been restricted to public
sector workers, take-up has been low. Of the 13 million property
transactions in England and Wales since 1997, only 110,000 have been
subsidised by the Government.
Now, after simplification, two main “products” have emerged that allow buyers
to purchase a share of a property without a deposit. Under the New Build
HomeBuy scheme, ownership of a new property is shared between an individual
and a housing association, and the purchase is exempt from stamp duty if the
individual acquires no more than 80 per cent. Under the other scheme, Open
Market HomeBuy, the buyer owns the whole property through a combination of
equity loans and a conventional mortgage. There are no restrictions on the
type of property but stamp duty is payable. This month, the Prime Minister
announced that all first-time buyers with a household income of less than
£60,000 will be able to take advantage of Open Market HomeBuy. About 75,000
households are expected to benefit by 2011.
However, at a time of rising repossessions and after the inadvertant
revelation by Caroline Flint, the Housing Minister, that she expects house
prices to drop 5 to 10 per cent, is it responsible to encourage young people
to invest in a depreciating asset? And is it sensible to pursue an
affordable housing policy that takes with one hand in stamp duty and gives
with the other in subsidies?
Stamp duty is now payable by first-time buyers in 99 per cent of local
authority areas in the South. In London, this costs an average £8,675 each.
Would it not be simpler to boost first-time buyers' purchasing power by
raising stamp duty bands in line with house price inflation?
The Conservatives think so. Grant Shapps, the Shadow Housing Minister, says:
“Gordon Brown needs to follow our lead by raising the threshold for
first-time buyers to £250,000, helping nine out of 10 into home ownership.
This would be much more productive than the complex schemes this Government
has tried to bring in.”
Another controversial element of Labour's housing policy is a planning
requirement that forces housebuilders to make a proportion of each new
development “affordable”. Private buyers object to paying full price for a
flat when their neighbour has bought one on the cheap because they fit into
an arbitrary government category. Developers' attempts to placate private
buyers by building affordable flats next to a railway line or by making
residents use separate entrances are just embarrassing. The future of the
Government's affordable housing targets has also been thrown into jeopardy
by the building slowdown.
Serious questions need to be asked about the whole concept of affordable
housing. Housing is by definition unaffordable if, as is the case now, most
first-time buyers need to borrow more multiples of their annual income than
banks are prepared to lend. So what is the answer?
Many in the property industry support shared equity/shared ownership schemes.
Sue Cocking, head of affordable housing at Knight Frank, admits that “mixing
affordable and private housing in the same scheme distorts the market and
makes developers and purchasers anxious”. She believes that the answer is
“to treat entire developments as private and to help more individuals to buy
through shared equity funding”.
Others, such as Liam Bailey, Knight Frank's head of residential research,
disagree: “Subsidy is counterproductive because it stokes demand: it injects
more cash into the system to chase the same small number of houses, thereby
worsening affordability for others. The Government is subidising certain
interest groups and thus denying access to another group.”
He says the only solution is “to enable more development”. If there were
enough houses to go round, none would need to be subsidised and put in a box
marked “affordable”. After all, he says, the new government threshold of
£60,000 “is a decent salary and there's something very wrong with the system
if anyone earning that much needs a subsidy”.
Whether the answer is to boost participation in government housing schemes,
scrap tax or build more ordinary houses and fewer “affordable” ones, most
agree that government policy is not making much of a dent and bolder
measures are called for.
But Mr Brown should not assume that voters are unanimously in favour of
handouts to first-time buyers, as one recent reader comment on the Times
Online property pages illustrates: “Shared equity, by God, what an absurd
piece of reverse socialism: 'Yes, yes, yes, I am on the ladder at last.'
Alas, the property is really owned by the banks and the Government. I do not
want my taxes spent on 'helping' someone on to the nightmare that is a
property bubble.”
CASESTUDY
Doug Kew, 26, an HR manager, had been sleeping in his parents' front room to
save money before buying a 40 per cent share in a Pounds 157,500,
one-bedroom flat in the Kennet Island development, Reading, in October.Under
the NewBuild HomeBuy scheme, he rents the rest from the Thames
Valley housing association (0845 3512345). "An outright mortgage
would have been a bit of a struggle and I much prefer to live within my
means," he says
Every property has a fundamental value - the annual rental yield multipled by 100 divided by the APR on borrowing to buy it. Looked at another way, a property is fairly priced if the rental yield is the same as the mortgage interest rate. Judged thus, most UK property is overvalued by 30-50%.
Mark, Caterham, UK
Dear Alexander of London,
You seems to be under the impression that all single mothers are given preference in the council housing. I can assure you that this is now a myth - all immigrants are now given presidence over the indigenous people. A national disgrace.
Sheila, Devon
Sheila cooper, Devon,
i hate socialism. a young professional on a decent salary (3x the national average!) can't afford a home while a 17 year old mother gets council housing for free? i am going to go get my girlfriend pregnant, then labour will take care of us at the expense of the other taxpayers...ludicrous!
Alexander, London, England
First time buyers should get themselves elected to Westminister, then the tax payer will foot the whole bill. Sounds complicated? Not compared to these schemes!
diana, derby,
Bex, Cheltenham. Sadly FTB's are finding it increasingly harder to 'save up' because rental premiums are going up!
I just sold my 1 bed flat to a Landlord in 3 weeks at a realistic price that i was happy with. He got a deal and now i'm taking advantage of this slump too.
PJB, London,
Bring back the prefabs.
andrew needham, tarporley, UK
Affordable housing should mean just that - affordable to rent/buy WITHOUT GIMMICKS! Help for FTBs fuels house price inflation because, as a 2nd time buyer, I'd want a share of that 'help' so as to give to the 3rd time buyer and so on. Better we all lose 10-25% on the supposed value of our homes.
Mary, Birmingham, England
The real issue is to have low priced property for sale. Schemes that do exist, as the writer points out, still have first time buyers paying high prices for property. Loan approval is just made easier. Try having housing built on government land at zero cost for the land.
Jim Wills, Brisbane, Australia
Why should the tax payer have to help FTBs? Are we living in a socialist dictatorship? Why don't people help themselves?
Kris, Bristol, UK
£60,000 decent salary, yes if your buying a house in the North for those of us who live in London with £60,000 you still struggle to get on the ladder unless you want long commutes! i am sure some people will lambast me but its true i am a young single male and £60,000 does not go exceptionally far
Ben, London,
The best way to help first-time buyers is to let the market take its course and fall, by the 30% regarded as realistic by the IMF. Shared equity is just a waste of taxpayers money. Of course if the govt had bothered to regulate lending in the first place, prices would never have become so crazy.
MB, Edinburgh,
When I bought my house in the early 90s, prices were beginning to drop like they are now. They continued to fall for the next five years before levelling out. I was in a negative equity situation for most of that period. This is what awaits anyone who buys a house today, especially 1st time buyers
John, Plymouth, UK
Why would anyone want to purchase a share in a (typically poorly built) flat, only to discover a year later that it is worth less than what was originally paid?? Also, share schemes are unsurprisingly difficult to sell on. FTB's, save your cash for a fat deposit,watch prices fall, then buy a house!
Bex, Cheltenham,
Trying to "help" 1st time buyers right now is criminal...they'll thank you in a couple of years' time....I mean who is desperate to buy a property these days?????!? Just wait, prices are coming off and will continue to do so...and I own a property in London so I'm not biaised towards any price moves
Olivier, London,
Kudos to Liam Bailey for being honest.
Lara, Brighton,
I'm an aspiring 1st time buyer. I could have a deposit by now if it weren't for the punishing £18000student loan I'm paying off first. People didn't have this 10 years ago! Why hasn't anyone mentioned this as a factor;1st timers are clobbered by gvt. induced debt-linked to the RPI, natch,not the CPI
Catherine, London,
There is no 'property ladder' - just a property bubble and it has burst. Throwing tax payer money at it merely adds waste to stupidity.
Anthony Price, Truro,
People should buy houses they actually can afford. Therefore, the best way to help the first-time-buyer is with prices that he can actually pay without relying on speculation to climb up the housing ladder. The 'ladder' was a BAD system as we can all see by now.
Rui, Lisbon, Portugal
Any scheme devised by Socialists will be a spectacular failure - they seem incapable of common sense and simplicity.
Here's a simple idea - just remove alot of the planning nightmare for self-build, then people will build exactly what they need at an affordable price and much more diversity.
Eddie, Harrogate, England
If you were a consultant you could not imagine a better government to work for. As opposed to modifying the existing tax system bands they want to introduce subsidies to the identified needy. I bet the consultant picking up 50% of the money allocated is not complaining.
John, Egremont, Cumbria