Gove’s grand plan leaves gaps to fill

As one MP put it, we welcome the steps forward in ministerial statements on building safety only to find problems in the steps backward that follow.

Michael Gove’s plans to ‘make developers pay’ represent the most positive steps seen so far but there are still major concerns over what comes next.

For starters, how exactly will he ‘make’ them? The initial plan in talks before Easter seems to be persuasion but the levelling up secretary has limited levers that he can pull and why would companies that have previously resisted calls to ‘do the right thing’ change their minds now?

He cited the way that Rydon Homes, sister company of the main contractor in the Grenfell refurbishment, was barred from Help to Buy but the scheme ends in 2023 and most of the £29 billion in equity loans has already been committed.

This highlights yet again a major flaw in the government’s support for housebuilders that I highlighted even before the creation of Help to Buy: its failure to get a quid pro quo for all that help for profits, bonuses and dividends.

Short of another support scheme, which may ironically be needed if supply plummets, that leaves blacklisting from Homes England programmes and naming and shaming as his principal weapons. Neither is a negligible threat but will they be enough?

That leaves coercion, legal action or the ‘high-level threat’ of a new tax that Gove is authorised to make in the letter leaked to Newsnight from chief secretary to the Treasury Simon Clarke.

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Putting the interest rate rise in perspective

Originally written as a column for Inside Housing.

‘Millions hit by higher mortgage bills,’ ran the headlines after the Bank of England raised interest rates for the first time in three years.  

‘Worst blow to first-time buyers since financial crisis,’ was the Telegraph’s verdict on the increase from 0.1 to 0.25 per cent. The move had been long expected but it was still enough to send shares in housebuilders lower and banks higher.

Most mortgages are now on fixed-rate terms so most borrowers will not see an increase immediately, although the decision will add around £10 a month to repayments for someone on the standard variable rate and £15 a month for a tracker mortgage customer.

With energy bills already rising, council tax bills going up next year and price inflation at 5.1 per cent and rising that can only add to the worry for those borrowers who are already stretched.

Another way of looking at the interest rate rise is that 0.25 per cent is 20 times lower than what would have been considered a ‘low’ rate before 2008. The record lows since the financial crisis have now lasted for more than half the term of what used to be a standard 25-year mortgage.

Little wonder that house prices have boomed and the wealth of home owners has rocketed and that first-time buyers have faced a ‘worst blow’ more or less every month.

Nevertheless there are bigger questions that lie behind what is largely a symbolic decision driven by the Monetary Policy Committee need to meet market expectations about a rent increase to tackle inflation that is now far above its 2 per cent target.

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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 problems with Johnson’s housing priorities

Originally written as a column for Inside Housing on October 6.

You are prime minister. You have £5.8 billion to spend on housing. What do you do?

Before you answer there is a catch. You are a Tory prime minister. So this has to be all about home ownership.

This is not about the Affordable Homes Programme either – although the modest increase in that is tilted towards home ownership too.

You may have guessed by now that this is about decisions already taken by Boris Johnson’s chancellor Rishi Sunak, decisions that are looking worse and worse the more time goes on.

That thought was prompted by the only ‘new’ idea that I’ve seen emerging from the Conservative Party conference: a plan to create ‘Generation Buy’ by encouraging low-deposit mortgages to help young people on to the housing ladder.

The idea revealed by Mr Johnson in a Telegraph interview on Saturday is not especially new – essentially it’s a rehash of the mortgage guarantee part of Help to Buy and it harks back to the days when Gordon Brown wanted to encourage long-term, fixed-rate mortgages – and it seems to be inspired by a report published by the Centre for Policy Studies last month.

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What help for housing?

Originally posted on insidehousing.co.uk on April 23.

An extension of Help to Buy looks likely, a stamp duty holiday probable, but what else should the government do when the housing market eventually emerges from its Coronavirus freeze?

Vested interests are already out in force making their case and can cite the effect of a downturn on housebuilding numbers, the economy and tax receipts in their support.

And if anyone is feeling a sense of déjà vu this is of course pretty much where we were in 2008, when the housing market slumped in the wake of the credit crunch.

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Help to Buy and wider housing policy

Originally posted as a blog for Inside Housing.

So much has been written about Help to Buy that by now everyone knows what they think.

If you’re a housebuilder the equity loan scheme introduced in 2013 has meant more new homes and more buyers.

If you unable to get a mortgage, the scheme may have offered a first step on to the housing ladder that would not otherwise have been available but you may be wondering about the quality of your new build.

If you’re a critic, even if you concede the first two points, the biggest impact has been on housebuilder share prices, dividends and executive bonuses.

Evaluations published so far have provided evidence to back up both sides of the argument. On the positive side, 37% of borrowers said they could not have afforded to buy without it; on the negative, that could also mean 63% did not need help.

The new feature of a report published yesterday by the Commons Public Accounts Committee (PAC) is that it takes a step back and considers the impact on the government and on wider housing policy.

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The long-term cost of Help to Buy

Originally posted on June 13 on my blog for Inside Housing. 

Whatever you love it or hate it, Thursday’s report from the National Audit Office (NAO) will probably not do much to change your mind about Help to Buy.

If you think that the equity loan scheme first launched in 2013 has boosted housebuilding and helped more people to buy their first home, you will find evidence to support that view: new-build  property sales increased from 61,000 a year in 2012/13 to 104,000 in 2017/18; and around 81% of people using the scheme have been first-time buyers.

If you think the scheme has mainly benefited housebuilders and the benefits for buyers have been more limited, you’ll find backing for that too: 63% of borrowers could have afforded to buy anyway; many of them have used the scheme to buy a bigger house than they could previously have afforded; and 10% of buyers had incomes higher than the £80,000 (£90,000 in London) limit for eligibility for shared ownership.

The report does reject one common allegation made against Help to Buy by estimating that homes sold under the scheme have cost just 1% more than similar new-build homes. Previous estimates ranging from 5% to 20% have not compared similar properties, says the NAO.

However, that is just part of a much bigger new-build premium (the difference between prices of new and second-hand homes) and the NAO seems to accept the high figure of a premium of 15-20% as a given rather than the product of market conditions that Help to Buy helped to create.

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It’s not just about Help to Buy

Originally posted on February 28 as a blog for Inside Housing. 

All the headlines this week are about Persimmon and Help to Buy but the issues with housebuilding are much bigger than either.

Yes, Persimmon is the most extreme example of the gains made on the back of state intervention, with profits of £1 bn and margins of over 30% to go with those huge executive bonuses that made it the poster child for corporate excess in the industry.

And, yes, Help to Buy supported almost half of its 13,341 private completions in 2018 and a major part of the rest of the industry’s output.

Public and media outrage has now reached the point where ministers feel they have to act and housing secretary James Brokenshire let it be known over the weekend that he has ‘become increasingly concerned by the behaviour of Persimmon in the last 12 months’.

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What’s in the Budget small print?

Originally published on November 30 on my blog for Inside Housing. 

If you listened to the chancellor’s speech you may have thought this was a Budget that did not mean much for housing. As ever you may think again after reading the small print.

As I live blogged for Inside Housing yesterday, the big news in the speech was the extra money for universal credit that makes up for many of the cuts imposed in universal credit and delays the roll-out yet again and sounds like it will be enough to avoid a backbench Tory rebellion.

Elsewhere, Philip Hammond found £2.8 bn to bring forward cuts in income tax allowances by a year but he failed to find roughly half that to scrap the final year of the freeze in most working age benefits including the local housing allowance.

This was a clear political choice to go for tax cuts that overwhelmingly benefit the better-off over benefits that go to the poorest households.

Ahead of the next spending review, numbers crunched by the Resolution Foundation overnight suggest that the squeeze on everything apart from health will continue well into the 2020s.

However, the most interesting developments for housing came in the background documents published as Mr Hammond sat down.

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Where next for Help to Buy?

Originally published on September 6 as a blog for Inside Housing. 

Take a quick look at any of the results published by the major house builders this week and it becomes clear just how dependent most of the industry still is on Help to Buy .

Barratt relied on Help to Buy equity loans for 36% of its sales in the year to the end of June – to put that in perspective all its other private sales only accounted for 31%.

In the past six months, Help to Buy accounted for 39% of sales at Taylor Wimpey and 36% at Bovis.

And a presentation to analysts by Redrow showed that 40% of its sales came via Help to Buy in the year to the end of June.

No wonder its chair Steve Morgan calls it a “godsend”and wants clarity about what happens when the scheme expires in March 2021.

A report from the Home Builders Federation (HBF) this week claims that Help to Buy has been an “unmitigated success”, ensuring the construction of 170,000 new homes in its first five years, while supporting 150,000 jobs and helping 137,000 first-time buyers on to the housing ladder.

But increasingly hostile coverage in the national press concentrates far more on soaring profits, pay and shares at the major house builders and wealthier buyers taking advantage of interest-free loans that they do not need.

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