A Housing Budget

by Ken Gibb

It would be premature to judge a Budget before the smoke clears and the technical papers have been properly assessed. Nonetheless, the housing sector is coming to terms with a series of major housing and mortgage interventions aimed at stimulating the market (owned and rented), promoting housebuilding, mortgage lending and more affordable supply. There is, it would also be fair to say, a degree of controversy amidst the welcome focus on housing.

What has been announced?

  • The Help to Buy scheme provides an equity loan to facilitate home-buyers (and not just first time buyers) purchase a 95% loan to value mortgage on a new build home via a 20% interest free equity loan. This is a temporary measure supposed to operate for three years only.
  • The mortgage guarantee scheme is a commercially priced government scheme that guarantees a portion of default losses should participating high loan to value loans fail. This runs for the first seven years of the loan and is for all buyers and extends to existing homes as well as new ones. It can also apply to re-mortgaging. The scheme is also temporary and will only operate for the next three years.
  • The Government is also expanding the affordable homes guarantee scheme to generate a further 15,000 homes in England.
  • As was much trailed, there will be more support for the RTB in England, shortening the qualifying period to three years and extending the maximum discount in London to £100,000.
  • A commitment to introduce the ‘pay to stay’ market rents scheme for high income social tenants
  • A big increase in the market renting build to rent scheme.

There is much discussion of these initiatives and rather than repeat what I have already read and agree with (e.g. lets see the details, watch out for inflationary market effects and other worries about 95% loans) – I would make a number of different points.

First of all, the enhancement of the RTB is just ideology unbound. It is an unnecessary diversion of resources. And it is unlikely to be able to generate one for one matching for new social housing from capital receipts. But then it is not really about housing, is it?

I also struggle with that other attention-grabbing social policy: the notion of high-income social tenants paying market rents. In many respects it is a classic austerity government policy of its time. Outside of Greater London are there that many social tenants who earn £60,000 or more? Is it good value for money when one considers the cost of setting it up and running it? Might not income ceilings for entrants be simpler and more reasonable (particularly in high demand areas)?

Second, following past criticism, buy to let is to be excluded from the new mortgage market initiatives but not, strangely remortgaging. Helping people secure a better mortgage deal is not a bad thing but to what extent will it divert scarce resources away from house movers and first time buyers?

Third, it would not be Budget day without a political spat between Westminster and Holyrood.  This time the Scottish Government is outraged that the apparent net boost in spending to Scotland (a cut in current spending outweighed by increase in capital) may not be what it first appears because much of the capital element turns out to be part of the UK equity loans mortgage initiative and in effect repayable loans. These do mean more resources for Scotland but not more funds for the Parliament to use with discretion (i.e. it is not devolved). This story is live as I write and we will see how it develops in the next few hours and days.

Finally, it looks like Government is getting into the indemnity insurance market based on the new mortgage guarantee proposal. This is a form of co-insurance which looks incredibly like the old mortgage indemnity guarantees. It is odd how things turn full circle. It was the Major Government who cut ISMI and promoted the creation of a market in mortgage payment protection insurance. Now, the Cameron Government is effectively standing in for a (failed) market in indemnity guarantees. Will the State do better than private provision of MIGs? It will also be interesting to see whether the commercial fees involved are passed on to borrowers (as they were in the 1980s)? As a temporary provision only the obvious question arises as to whether the State could facilitate a market solution for co-insurance indemnities in the longer term?