Guarantees, cladding and the housing market

Originally published on April 20 on www.insidehousing.co.uk.

The housing market is at a frenzied record high as house prices rise by more than 2 per cent in a single month.

Just the moment then for the government to step in with a scheme to guarantee 95 per cent mortgages for anyone who thinks they have to climb the ladder before it disappears out of reach.

The house prices in question are only asking prices as recorded by Rightmove but the £6,733 average increase between March and April reflects a rush to beat the end of the stamp duty holiday and demand for more space from people who have done well during the pandemic.

It’s now 13 months since the start of the pandemic and, to pick another measure, house prices are up by around £16,000 or more than 7 per cent since then, according to the Nationwide.

Prices initially fell amid the economic uncertainty but surged again on the back of the stamp duty holiday introduced by chancellor Rishi Sunak last July and then extended in March.

The overwhelming beneficiaries are people who already own homes who have been able to sell them for higher prices that now wipe out the stamp duty savings for most buyers. For all the rhetoric about helping people on to the housing ladder, few first-time buyers saved much in stamp duty and all now face having to spend considerably more in total.

The mortgage guarantee scheme, essentially a rehash of one part of Help to Buy, should help them by addressing a genuine problem with the supply of high loan-to-value mortgages.

However, lenders are cautious. The Financial Times reported on Saturday that the largest banks are refusing to lend on new builds under the scheme and that they may also charge higher rates and apply stricter affordability criteria.

From their point of view that makes sense to guard against falling prices, especially when they factor in the new-build premium that adds around 10 per cent to the cost of a new home. .

And the benefits look dubious for first-time buyers too. Based on the Nationwide index, a 95 per cent loan on home at the current average price would be £220,000 – more than the total price was when the stamp duty holiday was first announced.

None of this makes any sense and yet, in an under-supplied and under-taxed housing market fuelled by credit and low interest rates, somehow it does.

As memories fade of the housing market crash of the early 1990s and the downturn after the financial crisis, the logical next step would be a relaxation in affordability checks on mortgages to allow loans at larger income multiples, ignoring the lessons of the 2000s and the economic headwinds that could lie ahead as furlough ends.

But all of this is happening at the same time as the entire market for recently built flats remains mired in the continuing fall-out from the fire safety crisis.

Inside Housing reported on Friday on cases of leaseholders buying flats on the basis of External Wall System (EWS) form declaring that their cladding was safe only for new inspections to decide that it must be removed.

One buyer purchased a £350,000 flat rated A1 and safe in February only for the EWS to be downgraded to B2 just 34 days later. That made her flat worthless and left her facing costs for waking watch and cladding remediation.

If the EWS rating can be changed at the drop of a hat like this, why would anyone risk buying a recently built flat?

The government has grudgingly and in stages committed a total of £5.1 billion to fixing the cladding crisis so far and it has announced some welcome reforms to leasehold.

But leaseholders in buildings below 18m are only eligible for loans and help does not apply to other fire safety problems, leaving a significant chunk of the housing market in limbo.

The fact that at the same time the government has spent £5.4 billion on the stamp duty holiday says it all about where its priorities really lie.   


The cake and the crumbs

Originally published as a column on insidehousing.co.uk on April 15.

From Brexit to just about anything else you care to mention, Boris Johnson is known for wanting to ‘have his cake and eat it’. Why should it be any different for housing?

That was the first thought that sprung to mind reading through a raft of recent government responses to consultations. Much like the social housing green and white papers, they try to face in two different directions at once.

One points towards the more tenure-neutral territory staked out under Theresa May. The other points backwards to the promised land of home ownership staked out by David Cameron, the former prime minister turned PR man for failed bankers.

Both are evident in the outcome of consultations on the new model for shared ownership, changes to the current planning system and First Homes, supporting housing delivery and public service infrastructure and use of receipts from Right to Buy sales in the run-up to Easter.

So we get the expansion of permitted development to cover the conversion of most empty commercial buildings, not just offices, into residential. This may mean more ‘units’ but with too few constraints on quality to be regarded as ‘homes’.

Plans for reform of shared ownership include confirmation that landlords will be liable for repairs for the first 10 years on new homes but no acknowledgement that this leaves existing tenant-owners living in devalued assets.

There are plans to give existing as well as new shared owners the statutory right to a lease of 990 rather than 99 years but no fresh solutions for those left out of government help for fire safety costs or forced to take out £50 a month loans.

Reductions in the minimum initial stake and staircasing threshold meet commitments previously made by housing secretary Robert Jenrick without any real evidence supporting them.

Changes to the current planning system include a welcome u-turn on a proposal to increase the threshold at which small sites are exempt from affordable housing requirements from 10 homes to up to 50. That could rescue up to 30,000 affordable homes over the next five years.

However, that’s trumped by confirmation of plans to require a minimum of 25 per cent of homes delivered through developer contributions to be First Homes. Mr Jenrick is therefore diverting a sizeable chunk of the funding mechanism that accounts for more than half of affordable homes into his pet project.

On the Right to Buy, local authorities get five years rather than three to use receipts to build new homes and receipts can account for 40 rather than 30 per cent of the total cost. These are improvements to the scarcely credible ‘one-for-one replacement’ pledge made when discounts were increased in 2012.

But that could still leave them forced to sell homes for less than it cost to build them and it does not address the parallel question of ‘like-for-like’ replacement.

Far from responding to concerns raised in the consultation about broadening the definition, the government suggests that ‘affordable’ replacements for social rent homes sold could include not just affordable rent and shared ownership but also (you guessed it) First Homes.

All of which suggests that the loss of social rent homes – 210,000 in England in the last eight years, according to the latest UK Housing Review – will continue even as ministers make rhetorical nods to the tenure.

It’s as though one part of government wants to shift the balance of policy in favour of social and affordable housing only for another to tilt it back towards home ownership and the free market.

With crucial choices looming as society reopens and the economy moves off life support, which will get the cake and which will be left with the crumbs?