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.

Read the rest of this entry »

A Cabinet of housing ministers

Originally published as a column for Inside Housing on July 16.

We have become so used to lamenting the revolving door for housing ministers that it’s easy to miss the fact that Boris Johnson Cabinet is now full of people with housing connections.

That thought was prompted by the realisation that less than a year ago the man who could very well become our next prime minister was still on the most junior rung of the ladder at the Ministry for Housing Communities and Local Government (MHCLG).

Rishi Sunak has won widespread praise for his performance and chancellor during the pandemic and currently seems hot favourite to be the next Conservative leader if the Tories go through another Dr Who-style regeneration ahead of the next election.

In July 2019, though, the current chancellor was still answering questions about council reorganisation in Northamptonshire, anti-social behaviour and non-domestic rates as parliamentary under-secretary for local government.

But he had already boosted his career prospects significantly by signing a joint letter with two other new-ish Tory MPs giving early backing to Boris Johnson as party leader. Appointed chief secretary to the Treasury a year ago next week, he was joined in the Cabinet by the other signatories: housing secretary Robert Jenrick and culture secretary Oliver Dowden.

Previous housing secretary Sajid Javid became the new chancellor but within seven months he resigned in a row with Dominic Cummings over special advisers and Mr Sunak stepped into his shoes.

Within another month, the lockdown began, the new chancellor was doling out the cash and Brand Rishi was building its glossy momentum.

His own ties may be more to the LG end of the MHCLG brief but look around the rest of the Cabinet table and you cannot move for former housing ministers. Read the rest of this entry »


Sunak fails to look beyond the short term

Originally published as a column for Inside Housing on July 8.

This was a Summer Statement that was all about protecting jobs and getting money into the economy as quickly as possible.

Judged in those terms, while it does not go as far as some had advocated, the two big housing measures in chancellor Rishi Sunak’s Plan for Jobs look carefully calibrated to achieve both.

The £3.8 billion cut in stamp duty (increasing the nil rate from £125,000 to £500,000) is calculated to boost transactions, generate jobs and drive additional spending estimated at around 5 per cent of the house value.

And the Treasury reckons that the £2 billion Green Homes Grant (funding two thirds of the cost of energy efficiency work up to £5,000 for owners and landlords and all of the cost up to £10,000 to low income owners) could support over 100,000 green jobs as well as cutting carbon emissions and fuel bills.

But it’s not hard to find holes in the Summer Statement where other housing responses could and should have been: the statement does nothing more for affordable housing, it fails to fill holes in the safety net and, as  Generation Rent points out, vouchers to eat out are not much use if you cannot afford to stay in.

And though the two measures that are there should boost the economy in the short term the longer-term benefits of both look uncertain at best even when you judge them in isolation and in their own terms.

Read the rest of this entry »


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.

Read the rest of this entry »