Extending home ownership – Government initiatives by fanzhongqing


									                  Extending home ownership – Government
                  Standard Note:    SN/SP/3668
                  Last updated:     14 March 2012
                  Author:           Wendy Wilson
                  Section           Social Policy Section

In January 2005 the Office of the Deputy Prime Minister launched its Five Year Plan,
Sustainable Communities: Homes for All, in which a commitment was made to assist over
80,000 people into home ownership by 2010. In May 2005 the Labour Government
confirmed that it hoped to increase home ownership by a further 20-30,000, taking the total
potential increase in home ownership up to 110,000 by 2010.

The Housing Green Paper of July 2007, Homes for the future – more affordable more
sustainable, included a commitment to increase the output of new affordable housing by at
least 70,000 by 2010-11, this was to include at least 25,000 new shared ownership and
shared equity homes a year by 2010-11.

The Coalition agreement included a commitment to promote shared ownership. In Laying the
Foundations: A Housing Strategy for England (November 2011) the Government set out its
plans for incentivising home ownership.

This note explains the Government assistance available to access home ownership.

1    First time buyers and affordability                                                    2 

2    Low-cost home ownership schemes                                                        3 
     2.1  Statutory purchase schemes                                                        4 
     2.2  Cash incentive schemes                                                            4 
     2.3  Equity loan schemes                                                               5 
           Open Market HomeBuy (now closed)                                                 5 
           HomeBuy Direct (runs to 2012)                                                    6 
           FirstBuy                                                                         7 

This information is provided to Members of Parliament in support of their parliamentary duties
and is not intended to address the specific circumstances of any particular individual. It
should not be relied upon as being up to date; the law or policies may have changed since it
was last updated; and it should not be relied upon as legal or professional advice or as a
substitute for it. A suitably qualified professional should be consulted if specific advice or
information is required.

This information is provided subject to our general terms and conditions which are available
online or may be provided on request in hard copy. Authors are available to discuss the
content of this briefing with Members and their staff, but not with the general public.
        2.4  New Build HomeBuy (conventional shared ownership)                                       8 
        2.5  Rent to HomeBuy scheme                                                                  8 
        2.6  Social HomeBuy                                                                          9 
        2.7  First Steps – London                                                                    9 
        2.8  The First Time Buyers Initiative                                                        9 
        2.9  NewBuy Guarantee (previously the mortgage indemnity scheme)                            10 

3       Other initiatives                                                                           12 
        3.1  Housing associations – buying open market homes                                        12 
        3.2  Mortgage market stability                                                              12 

4       Comment                                                                                     13 

1         First time buyers and affordability
Up to the end of 2007 there was a great deal of press coverage on the subject of potential
first-time buyers being priced out of the housing market. In January 2005 the Halifax
published a survey which indicated that young single people could not afford to buy a home
in more than 90% of English towns and cities. 1

Up to March 2007 the Labour Government published monthly Housing Market Reports. The
June 2004 edition looked at a number of issues around affordability. One of its findings was
that the deposit required by first time buyers in the first quarter of 2004 was 21.7% of the
purchase price compared with 8.8% in the second quarter of 1997. The final Housing Market
Report of March 2007 recorded house price inflation as rising to 10.9% in January 2007, up
from 9.9% in December 2006. At the same time average earnings growth stood at 3.5%,
down from 3.6% in December 2006. 2

In July 2007 the Council of Mortgage Lenders (CML) reported that first time buyer income
multiples reached their highest level ever in May of that year:

          Today’s survey revealed that first-time buyer income multiples reached their highest-
          ever level in May at 3.37 times the average first-time buyer income, up from 3.33 times
          in April. And, mortgage interest payments continued to rise, reaching 19.1%, up from
          18.7% in April - their highest level since 1992.

          Home movers also face increased affordability constraints. In May the average home
          mover income multiple reached a record 3.03 times, up from 3.01 times in the previous
          month. And, the proportion of income used to pay mortgage interest also jumped to
          16.6% from 16.3% in April.

Roof magazine’s Affordability Index published in May/June 2008 recorded the UK’s
affordability crisis as “reaching a new peak in 2007”. The index, devised by Professor Steve
Wilcox of the University York, takes 1994 as the base year (100) and concluded “that UK

     ‘First-time buyers priced out of nine towns in 10’, Daily Telegraph, 22 January 2005
     Archived Housing Market Reports can be found online.

affordability deteriorated to 176.7 (meaning that it was 76.7 per cent harder to access the
market) in 2007”. 3

Despite the impact of the credit crunch on house prices since the end of 2007, there
appears, to date, to have been no discernable improvement in affordability for first time
buyers. Lenders have tightened their criteria for mortgage approvals and are requiring buyers
to have substantial deposits. Mortgage products themselves are more expensive, and as
there is less credit around in the market there are fewer mortgages available overall.

The Oxford Economics report (Housing Market Analysis, July 2011) reached the following
conclusions on the outlook for first time buyers:

        One of the key constraints is mortgage availability. We expect the squeeze in lending
        standards to dissipate gradually over the coming two to three years. We have already
        seen the reintroduction of mortgages with higher loan to valuation ratios, but ratios
        remain well short of those seen at the peak (lenders are just about starting to
        reintroduce 90% deal), and credit scores and other non-financial criteria are being
        applied much more strictly. As such, we expect the average LTV to creep up only
        steadily from the 2010 averages of just under 70% for first timers and 62% at the
        overall level. We assume that over the medium term average LTVs settle at 75% and
        65% respectively. 4

2       Low-cost home ownership schemes
One of the Labour Government’s responses to the difficulties faced by first-time buyers in
accessing home ownership was to develop a series of low-cost home ownership schemes.
Around 95,000 people were assisted into home ownership under these schemes between
1997 and 2008. 5 No specific sales targets were set for schemes such as Open Market
HomeBuy or New Build HomeBuy in order “to ensure flexibility within the programme.” 6

The new Government set out its position on encouraging home ownership in response to a
        Grant Shapps: The Government are committed to helping those who aspire to own
        their own home, through ensuring a return to economic and financial stability. The
        Government are seeking to achieve this through a programme of debt reduction and a
        commitment to abolish the structural deficit in the life of this Parliament. This will help
        to keep mortgage interest rates low and improve credit availability.

        The coalition agreement included a commitment to promote shared ownership. While
        grant funding under the new investment model for affordable housing announced in the
        spending review will primarily target the new affordable rented product, there may be
        some scope for delivery of low cost home ownership as part of the contractual
        arrangements with providers where this is appropriate for local circumstances. 7

Constituents interested in applying for assistance should contact their local Homebuy Agent:
Find a HomeBuy agent: Directgov - Home and community

    Mortgage costs accounted for 12% of householders’ income in 1994 and 21.2% in 2007.
    Oxford Economics report, July 2011
    Communities and Local Government (CLG) Press Release, Budget will help first- time buyers with new home
    loans, 12 March 2008
    HC Deb 8 May 2008 c1078W
    HC Deb 1 December 2010 c 848W

2.1     Statutory purchase schemes
Around 80% of social housing tenants have a statutory right to buy or acquire the home in
which they live at a discount.

Under the Right to Buy most council tenants, most former council tenants living in homes
transferred to a housing association, and all housing association tenants living in their home
since before 15 January 1989, have a statutory right to buy their home with a discount off the
open market value. The level of discount is subject to a maximum limit of between £16,000
and £38,000 depending on the local authority area in which the property is situated.

During his speech to the 2011 Conservative Party Conference the Prime Minister said that
the Government would “bring back the Right to Buy and use the money to build new
homes.” 8 Detail on how this will be achieved can be found in Library Note SN/SP/6251.

Under the Right to Acquire, housing association tenants living in homes built or acquired with
public subsidy since April 1997, and those living in homes transferred from a local authority
to a housing association from the same date, have a statutory right to acquire their home
with a discount off the open market value. The level of the discount is subject to a maximum
limit of between £9,000 and £16,000 depending on the local authority area in which the
property is situated. Tenants are required to contribute at least 50% of the purchase price.
Some properties are exempt, including those in designated rural areas (generally areas with
a population of 3,000 or less) and supported housing for people with special needs.

2.2     Cash incentive schemes
In addition to the statutory schemes described above, council tenants may benefit from Cash
Incentive Schemes at the discretion of their landlord. These schemes involve a grant being
issued to tenants to help them to buy a home on the open market, thereby freeing up a social
rented home for new tenants.

A Regulatory Reform Order to allow local authorities to run schemes without the Secretary of
State's consent came into force on 1 April 2003. 9 The Order allows local authorities to set the
size of grant payable to take into account the local housing market. All grants must be means
tested. There is no central funding for these schemes; where they exist they are funded from
the local authority’s capital resources.

    Regulatory Reform (Schemes under s.129 of the Housing Act 1988) (England) Order 2003 (SI 2003/986)

2.3      Equity loan schemes
Equity loans help people to buy a home where they can't raise a mortgage to cover the full
price. When the buyer sells and moves on, the equity loan is repaid as an equivalent
proportion of the sales proceeds. So the repayment includes a share in any increase - or
decrease - in the value of the home.

The Labour administration introduced several equity loan schemes under the HomeBuy
banner. These are described briefly below. The new Government announced the FirstBuy
scheme, also a type of equity loan scheme, during the 2011 Budget.

Open Market HomeBuy (now closed)
The Open Market HomeBuy (OMHB) scheme was a form of equity loan scheme under which
applicants could identify a property they want to buy on the open market. As originally
conceived the OMHB scheme involved a minimum purchase of 75% of the value of the
property – financed through a conventional mortgage and/or savings. The remaining 25%
was covered by a loan. 10 The scheme, which was launched in October 2006, was open to a
Government defined group of key workers, social tenants, people on housing waiting lists
and first-time buyers identified as having priority by Regional Housing Boards (later Regional

As part of the 2008 Budget the then Chancellor announced an extension of the OMHB
scheme from 1 April 2008 to make it more flexible in terms of the percentage of the value of
the property that could be borrowed in the form of an equity loan and to give more choice
over the mortgage that buyers could take out. There were two OMHB schemes on offer up
until the Government announced their closure to new applicants on 30 June 2009 – these
were MyChoice Homebuy and Ownhome.

MyChoiceHomeBuy offered an equity loan of between 15 per cent and 50 per cent of
purchase price provided in partnership with a consortium of eight Housing Associations. 11
The loan could be used in conjunction with any conventional mortgage. Interest was charged
on the full MyChoiceHomeBuy loan up to 1.75 per cent in the first year and increased
annually by the Retail Price Index plus 1 per cent. The initial 1.75 per cent was capped.

Ownhome offered an equity loan of between 20 per cent and 40 per cent of purchase price -
provided in partnership with the Housing Association, Places for People, and Cooperative
Financial Services, which could be used in conjunction with any conventional mortgage from
the Co-operative Bank. There were no interest charges on the Ownhome loan for the first
five years. There was a charge of 1.75 per cent per year in years six to 10 and from year
11 onwards an interest charge of 3.75 per cent per year applied.

MyChoiceHomeBuy was funded 50 per cent by CHASE and 50 per cent by the Government
(via the Homes and Communities Agency, HCA). Ownhome was funded 58 per cent by
Places for People and 42 per cent by Government.

     Funded by housing associations with grant from the Housing Corporation.
     This consortium was collectively known as CHASE.

On 14 May 2008 the then Government extended the groups of people eligible for the OMHB
and New Build HomeBuy schemes to all first time buyers with a household income of less
than £60,000. 12

The Open Market HomeBuy Schemes, particularly MyChoiceHomeBuy, proved extremely
popular. The HCA subsequently announced that funding for the scheme in 2009/10 had
been allocated and directed potential applicants to other forms of assistance including
HomeBuy Direct and New Build HomeBuy.

In terms of future funding, the then Housing Minister, John Healey, announced on
30 June 2009 that the Open Market HomeBuy schemes were closed to new applicants. He
said “in future our low cost home ownership programme will be directed to schemes which
support new-build homes.” 13

HomeBuy Direct (runs to 2012)
On 2 September 2008 CLG set out a package of measures designed to respond to the
downturn in the housing market. One of the measures included the creation of a new shared
equity scheme aimed at first-time buyers offering equity loans of up to 30% of the value of
the homes which were free of charge for five years on new build properties.

          First-time buyers are one of the groups hit hardest by the credit crunch. First-time
          buyers would usually benefit from falling prices, but a combination of the higher cost
          of borrowing, bigger deposit requirements and weakening consumer confidence
          means this has not happened.

          In order to respond to these challenges, today we are announcing the creation of
          HomeBuy Direct, a new £300m programme in partnership with housebuilders
          designed to help up to 10,000 first-time buyers into affordable home ownership in new
          homes over the next two years. By providing a targeted boost to the housing market,
          HomeBuy Direct will also help to maintain the capacity of the housebuilding industry to
          respond when the market recovers. This in turn will support our longer-term housing
          supply aspirations.

          HomeBuy Direct will provide qualifying first-time buyers with an equity loan of up to 30
          per cent of market value, which they will be able to use to buy a new build property
          within specific schemes brought forward by developers through a competitive bidding
          process. Equity loans will be co-funded by Government and by the scheme
          developers on equal terms, and will be provided free of charge to the purchaser for
          the first five years (a charge will apply from the sixth year onwards). The eligibility
          criteria for applicants who wish to purchase under HomeBuy Direct will be the same
          as those already in place for the other HomeBuy products.

Additional money (£80m) was made available as part of the 2009 Budget for the HomeBuy
Direct scheme. 15 HomeBuy Direct will continue until 2012 as it is a funded scheme for a
specific period – FirstBuy and HomeBuy Direct will “overlap” for a period of time. 16

Information on the scheme can be found on the HCA website.

     CLG Press Release, Helping first-time buyers on to the property ladder, 14 May 2008
     HC Deb 30 June 2009 WS12-13
     CLG Press Release, Billion pound package for housing, 2 September 2008
     HC Deb 30 April 2009 c1397W
     HC Deb 4 April 2011 c730

This new scheme, backed by funding of £250m, was announced by the Government in the
2011 Budget. The HCA’s website provides the following description of the scheme:

         FirstBuy is a new product in the Government’s HomeBuy range designed to assist first
         time buyers into home ownership. It is expected to assist over 10,000 purchasers to
         buy a new home over the next two years.

         FirstBuy is part of the Government’s wider proposals to boost growth by
         simultaneously stimulating demand, tackling supply-side barriers and supporting local
         priorities for supply. FirstBuy is aimed at maintaining capacity in the housebuilding
         industry in the short-term while assisting deposit constrained first time buyers to realise
         their homeownership aspirations.

         FirstBuy support is offered through equity loan funding of up to 20% of the purchase
         price split equally between the Agency and a housebuilder, with purchasers being
         required to raise funding (a mortgage plus deposit) of at least 80% of the purchase

         FirstBuy will be delivered by the Homes and Communities Agency, working with
         housebuilders, as part of its Affordable Homes Programme. The HCA intends to enter
         into the first contracts with housebuilders by the summer 2011 and expects first homes
         available for purchase shortly afterwards. There will be separate contracts for delivery
         in London and for allocations for delivery out of London.

Equity loans under this scheme will be free of charge for the first five years and will be repaid
on resale of the property with repayment based on the value of the property at that time. The
receipt raised from the sale will be available for recycling into the development of new homes

The initial stage in implementing FirstBuy saw the launch of a competition for housebuilders
to offer new build homes for the initiative. The HCA accepted bids for the scheme from
builders up to 19 May 2011. 17

On 20 June 2011 Grant Shapps formally launched the scheme. He announced that 100
builders would take part by offering newly built houses to first time buyers. He listed some of
the builders and lenders that would take part (subject to contracts being signed):

         Persimmon Homes

         Barratt Homes

         Bovis Homes Limited

         CM Yuill Limited

         Galliford Try Homes

         Morris Homes Limited


         The Miller Group Limited; and

         Taylor Wimpey




         Barclays; and

         The Melton Mowbray Building Society 18

Of the £250 million announced in the Budget, £210 million funding has been allocated to the
scheme in England, with the remaining £40 million to be shared between the devolved
administrations in Wales, Scotland and Northern Ireland as Barnett consequentials. 19 It will
therefore be up to each of the devolved administrations to decide whether to introduce
similar schemes within their jurisdictions.

2.4      New Build HomeBuy (conventional shared ownership)
This was name was given to what had been traditionally known as shared ownership.

Under this scheme applicants buy a leasehold property (flat or house) on shared ownership
terms. They buy a minimum 25% share of the property – the remaining share, on which rent
is payable, is owned by a housing association. Purchasers can buy additional shares in the
property as and when they can afford to do so. 20 Staircasing is usually possible in minimum
10% tranches up to 100%. The scheme was originally open to all key workers, social
housing tenants and those in priority housing need but was extended to all first-time buyers
with an income of less than £60,000 on 14 May 2008. Additional information can be found
on the Directgov website.

In addition to the standard shared ownership product under New Build HomeBuy the HCA
offers two specific versions; Home Ownership for People with Long Term Disabilities (HOLD)
and Older Persons Shared Ownership (OPSO).

The Homes and Communities Agency’s affordable housing programme over 2011-15 “will
include affordable home ownership where appropriate in local circumstances.” 21

2.5      Rent to HomeBuy scheme
On 16 July 2008, the then Minister for Housing, Caroline Flint, announced a new pilot
scheme to help prospective first-time buyers to access the housing market. 22 The scheme
was managed by the HCA and enabled households who would normally be eligible to
purchase a New Build Homebuy property to rent the property at less than market rent for a
pre-specified period. At the end of that time (or sooner if they are able) they would be given
first option to buy a share of the property through the New Build HomeBuy scheme. The rent
charged gave households time to save for a deposit, or for their financial circumstances to
improve sufficiently, for them to enter homeownership via New Build Homebuy. Information
on the scheme can be found on the Direct.gov website and on the HCA website.

     CLG Press Release 20 June 2011
     HC Deb 29 March 2011 c212W
     This process is known as staircasing.
     HC Deb 4 April 2011 c738
     CLG, Facing the housing challenge: action today, innovation for tomorrow, July 2008

The pre-specified rental period was initially three years but this was extended in many cases
to five years as housing associations reported that people were struggling to raise the
necessary funds over three years. 23

2.6      Social HomeBuy
The Social HomeBuy scheme is aimed at assisting tenants of social landlords who do not
qualify for the Right to Buy or Right to Acquire or who cannot afford to exercise these rights,
to buy a share of their rented home.

This discretionary scheme operates on a shared ownership basis – tenants buy a minimum
share of 25% of the value of the property. The purchase attracts a discount which is the
Right to Acquire discount (generally between £9,000 and £16,000 - depending upon the local
authority area in which the property is located), pro-rata to the share purchased. Since
1 April 2008 new applicants have also been entitled to receive a discount on further shares

Rent is payable on the un-owned share of the property. Staircasing is allowed in minimum
10% tranches up to 100%. Receipts raised from sales can be used for ‘housing related
purposes’. 24 Exemptions operate in rural areas that are exempt from the Right to Buy and
Right to Acquire and to housing specifically for those with long term disabilities or special
needs, or housing specifically provided for the elderly.

2.7      First Steps – London
The First Steps website brings together the shared ownership and equity loan products
available in London – see: http://www.firststepslondon.org/index.asp

2.8      The First Time Buyers Initiative
The First Time Buyers Initiative was aimed at addressing affordability issues by offering a
stepping stone to home ownership via shared equity. English Partnerships led on the
delivery of 15,000 homes up to 2010. The scheme was explained on the English
Partnerships’ website:

          FTBI is similar to other government shared equity schemes through which it enables
          eligible first-time buyers to buy a share in a new FTBI home.

          The buyer must take out an affordable mortgage, which along with any deposit, must
          make-up a minimum of 50% of the full purchase price. In return English Partnerships
          will assist with up to 50% of the full property price. Assistance is paid to the
          participating housebuilder, not the first-time buyer. English Partnerships then has an
          entitlement to a share of the future sale proceeds which will be equal to the initial
          percentage contribution. For example, if English Partnerships paid 50% towards a
          £200,000 home, it would be entitled to 50% of the achieved sale price on sale.

          FTBI home owners can choose to reduce the amount payable to English Partnerships
          at any time by making repayments at the prevailing market value. The minimum
          additional repayment is 10% of the market value.

     Inside Housing, “Rent to buy savings period extended”, 27 February 2009
     They will be recycled into a Disposals Proceeds Fund.

          For the first three years of FTBI home ownership there is nothing to pay on the
          amount that English Partnerships contributed. After three years, buyers will pay a fee
          to English Partnerships (through the National HomeBuy Agent) of 1% per annum on
          the amount English Partnerships funded. This fee will increase each year by a fixed
          percentage reaching a maximum of 3% after five years in the property.

2.9      NewBuy Guarantee (previously the mortgage indemnity scheme)
In Laying the Foundations: A Housing Strategy for England (2011) the Government set out
plans to “get the housing market moving” through a variety of measures, including the
development of what was then called a “mortgage indemnity scheme:”

         ...supporting a new and innovative new build indemnity scheme led by the Home
         Builders Federation and Council of Mortgage Lenders to provide up to 95 per cent loan
         to value mortgages for new build properties in England, backed by a housebuilder
         indemnity fund.

Grant Shapps declared the scheme, now called the NewBuy Guarantee Scheme, “open for
business” on 12 March 2012. 25 He said:

         From today three leading high street lenders and seven of the country's biggest
         building firms will begin to offer mortgages on newly-built properties to people with just
         a five per cent deposit; a financial product not available anywhere else in the market.
         Other leading names, including smaller housebuilders, are expected to follow their lead
         in the coming weeks and months.

         Today's deals will mean that instead of a typical buyer requiring a £40,000 deposit for
         £200,000 property, they will now only need £10,000. The Government and
         housebuilders will help provide security for the loan, so if the house is then sold for less
         than the outstanding mortgage total the lender will be able to recover its loss.

         The scheme, which has attracted strong support from many of the country's biggest
         house-builders and mortgage lenders, will offer help for up to 100,000 buyers who
         would otherwise be frozen out of the market.

         The deals will include:

         •   Barclays who will offer 95 per cent Loan-to-Value mortgages on properties built by
             Barratt, Bellway, Bovis, Persimmon, Redrow and Taylor Wimpey at just 4.99 per
             cent fixed rate for two years and 5.89 per cent fixed rate for four years

         •   Nationwide who will offer 95 per cent Loan-to-Value mortgages on properties built
             by Barratt, Bovis, Bellway, Persimmon, Redrow and Taylor Wimpey at just 5.69 per
             cent fixed rate for three years and 5.99 fixed rate for five years; and

         •   NatWest who will offer 95 per cent Loan-to-Value mortgages on properties built by
             Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey at
             just 4.29 per cent fixed rate for two years and 4.99 per cent fixed rate for five years.

         In addition, Crest Nicholson will be joining the scheme imminently.

         The NewBuy Guarantee will support an estimated 50,000 jobs in construction and
         related industries by increasing demand for newly-built homes.

     CLG Press Release, Unlocking aspiration for a new generation of home buyers, 2012

            The scheme will also help jumpstart the stalled housing market as people begin to
            move, ensuring more newly-built and older properties become available to buy. 26

The notes to the press release provide more detailed information on the operation of the

            The NewBuy Guarantee Scheme is intended to boost housing supply and deliver a
            significant increase in access to affordable mortgages for those who can afford
            mortgage repayments but do not have large savings. Final details of the scheme were
            published today and can be found at:


            The Government has supported the Home Builders Federation and the Council of
            Mortgage Lenders in their development of the NewBuy scheme, which will be
            administered by Jardine Lloyd Thompson Group plc. All lenders and builders operating
            in England can now participate in the scheme, and will be responsible for forming their
            own commercial arrangements. More details can be found at: www.hbf.co.uk (external

            Home buyers can buy new build properties constructed by a participating builder using
            NewBuy. A leaflet for interested buyers can be found at:


            130 builders have registered an interest in participating in NewBuy with the Home
            Builders Federation. Of these, 76 are not members of the Home Builders Federation
            and will be accessing the scheme on a level playing field.

            More lenders are keenly interested in NewBuy and plan to participate over the coming
            weeks and months. Halifax is working with 16 builders and will be launching a range of
            products specifically designed for the scheme in April. Santander is in the final stages
            of agreeing partnerships with selected developers and will start to offer its first NewBuy
            mortgages via intermediaries with established ties to these housebuilders by the
            middle of the year.

            Lenders will still assess potential borrowers according to the usual underwriting and
            risk criteria. However, because of reduced risk profiles, lenders will be able to lend at a
            higher loan to value ratio than usual, meaning that potential home buyers need a
            smaller deposit. The following eligibility criteria will also apply:

            •   the price of the property must be less than £500,000

            •   homes bought through NewBuy must be a standard purchase - not shared equity
                or shared ownership

            •   the property being purchased must be the applicants' main home - not a second
                home or a buy to let investment

            •   the applicants must be UK citizens, or have indefinite leave to remain in the UK.

            Under the NewBuy scheme housebuilders will put 3.5 per cent of the sale price into an
            indemnity fund for each property sold, and the Government will provide additional
            security for the mortgage loan in the form of a 5.5 per cent guarantee. In the event of
            repossession, the lender will be able to recover any losses to the maximum covered by


         the borrower's deposit and the home builder's fund, and then call on the Government
         guarantee. If no claim is made builders can recover their contributions after seven
         years. 27

3        Other initiatives
3.1      Housing associations – buying open market homes
On 14 May 2008 the then Minister for Housing and Planning announced that the Housing
Corporation would be able to allocate up to £200m of its resources to buy new properties on
the open market, either to be made available for first time buyers to purchase through the
HomeBuy scheme or for social rent. 28 On 16 July 2008 the then Minister said that the £200
million allocated should not be regarded as an “arbitrary cap”:

          Should properties at the right price, in the right locations and offering good standards
          be available, we will add additional tranches of purchases in order to support delivery
          of our demanding affordable housing targets. This is the right approach, rather than
          setting an arbitrary figure which could lead to the purchase of inappropriate and low
          quality stock as in the 1990s. 29

3.2      Mortgage market stability
In addition to the extension of the HomeBuy schemes, in 2008 the Chancellor outlined the
Labour Government’s approach to securing stability in the mortgage market in his Budget

          It is precisely at this time that we need to do more to promote longer-term stability for
          home owners and mortgage holders. Already, the reforms we have introduced have
          created much greater stability with consistently low mortgage rates for home owners.
          However, the uncertainty in the financial markets is having an impact on mortgage
          lenders here in the UK, so I want to take measures that will keep mortgage rates low
          and stable.

          In 2006, 30 per cent. of mortgages agreed in the UK—£100 billion of lending—were
          funded through secondary funding markets. Current conditions in these mortgage
          markets are extremely difficult because of the financial turbulence in global markets.
          In some countries, those markets are closed. It is, however, imperative that lenders
          have access to stable and low-cost funding so that mortgage rates can come down as
          soon as possible. We want to bring together investors and lenders with the Treasury,
          the Bank and the Financial Services Authority to find market-led solutions to
          strengthen these funding markets further.

          I also want more people to have the choice of a long-term fixed mortgage. These
          protect borrowers from risks and allow them the flexibility to move and to get a new
          mortgage if rates go down. Today, however, most people in the UK have short-term
          fixed-rate mortgages for two or three years, leaving them exposed to interest rate
          rises when their mortgage deal ends. That is not the case in other countries—
          Denmark, for example—where the majority of home owners take out long-term fixed-
          rate mortgages. I want to see more flexible and affordable long-term fixed-rate
          mortgages for 10, 20 or 25 years.

     CLG Press Release, Helping first-time buyers on to the property ladder, 14 May 2008
     CLG, Facing the housing challenge: action today, innovation for tomorrow, July 2008

          I am today publishing the findings of a review of housing finance in the UK. The
          conclusions show that long-term fixed-rate mortgages can reduce some of the risks of
          taking out a mortgage, especially for first-time buyers and lower-income families, and
          this will help more people get on to and stay on the housing ladder. So I want to seek
          views on how we can deliver—drawing on international experience—the right
          framework for the UK to achieve long-term fixed-rate mortgages, and I will report back
          in the pre-Budget report.

Subsequently the then Chancellor of the Exchequer asked Sir James Crosby to advise on
options to improve the functioning of mortgage finance markets. Sir James Crosby’s work
focused on how the Government and industry experts can work together on options that may
strengthen mortgage-backed securities markets as a stable source of finance over the
medium and longer-term. The results of his work can be found online here.

The Coalition Government has emphasised the need to stabilise the financial markets in
order to assist people to access mortgage finance:

         Grant Shapps: The Government are committed to helping those who aspire to own
         their own home, through ensuring a return to economic and financial stability. The
         Government are seeking to achieve this through a programme of debt reduction and a
         commitment to abolish the structural deficit in the life of this Parliament. This will help
         to keep mortgage interest rates low and improve credit availability. 31

4        Comment
Prior to the market downturn, one of the key concerns expressed by housing commentators
in relation to the Labour Government’s home ownership initiatives was that the promotion of
‘subsidised’ shared ownership/equity schemes might further inflate house prices if
unaccompanied by an overall increase in housing supply. Dan Kemp, senior fund research
analyst at stockbroker Christows, said:

          Far from being a boon to those in need, it is actually an encouragement to invest in an
          already inflated asset class, which could have disastrous longer-term effects on the
          housing market, and in particular on first-time buyers. 32

An inquiry into low cost home ownership assistance by the Public Accounts Committee
published in March 2007, A foot on the ladder, acknowledged the potential impact of
subsided shared ownership schemes on the market and recommended improved modelling
by the Department, particularly focused on local markets. 33 In response, Communities and
Local Government (CLG, the Department which took over responsibility for housing matters
from the Office of the Deputy Prime Minister (ODPM) in 2006) said that there was no
evidence that low cost home ownership assistance was increasing demand in property “hot
spots” but agreed that there was value in understanding the impact of these schemes on
local property prices. The Department said it would consider ways in which this could be
done. 34

     HC Deb 12 March 2008 cc294-5
     HC Deb 1 December 2010 c 848W
     ‘Building on Brown’s cheap mortgages plan,’ Financial Times Money, 28 May 2005
     Committee of Public Accounts, Nineteenth Report of 2006-07, HC134, March 2007
     Cm 7077, May 2007, p44

The Labour Government did commit itself to increasing the supply of housing. Homes for the
Future, the Housing Green Paper published in 2007, set out a target to deliver 2 million
homes by 2016 and 3 million by 2020. 35 However, the onset of the credit crunch and the
drop in mortgage availability impacted upon these house-building targets as the building
industry scaled back the number of homes in construction. 36 Reports at the time indicated
that the shared ownership element of the National Affordable Housing Programme was at
risk as associations were finding it more expensive to raise the necessary private finance:

          Three major lenders have pulled out of offering loans to housing associations, which
          were supposed to be building many of the thousands of affordable new homes a year
          that the Prime Minister promised. The National Housing Federation, which represents
          associations, has now sought talks with the government about extra grants to tide
          them over.

          Housebuilders warned that the freeze could also see builders downing tools on private
          developments where housing associations struggled to find finance. Cheaper housing
          has been one of Brown's cornerstone policies. He has promised to build up to 3
          million more new homes by 2020, including 70,000 affordable homes a year by 2010-
          2011 - around the time of the next election.

          A federation spokesman said that housing associations should be able to ride out the
          crisis in the long term, but added: 'The credit crunch is affecting lending, and I think
          definitely in the short term housing associations are seeing the cost of borrowing
          going up and some lenders moving on to other areas.'

In July 2008 the then Housing Minister reported on progress against the key targets set out
in the 2007 Housing Green Paper:

         •    almost 200,000 additional homes in 2006-07 – an increase of more than 50 per
              cent compared with 130,000 in 2001-02

         •    provisional figures show that around 30,000 social rented homes were delivered in

         •    around 24,000 households were helped into low cost home ownership in 2007-08

         •    identification of suitable surplus public sector sites with capacity for some 140,000

         •    104 out of 150 Local Area Agreements including housing supply as a priority, 102
              with Affordable Housing as a priority 38

At the same time the then Minister acknowledged the difficulties facing the housing market
and set out the Government’s response. Most of the Labour Government’s initiatives have
been outlined in this note, such as the pilot Rent to HomeBuy scheme, more detailed
information can be found in Facing the housing challenge: action today, innovation for
tomorrow. The 2009 Budget contained measures aimed a producing a “robust supply
response”. Specifically, the Budget announced measures intended to support the property

     CLG, Cm 7191, p7
     BBC News, Housing decline hits construction, 31 March 2008
     The Observer, “Credit crunch hits affordable homes plan, 13 April 2008
     CLG, Facing the housing challenge: action today, innovation for tomorrow, July 2008

market by stimulating supply and boosting capacity in the construction industry - £605m in
total which was expected to deliver an additional 10,000 homes in England.

On shared equity schemes, the Chartered Institute of Housing (CIH) has expressed support
for proposals to help individuals realise their aspirations to own their own homes and to
enable more people to share in the equity of their homes but does not want this to take place
at the expense of delivering more rented homes:

          CIH will not support proposals which switch resources for much needed new social
          housing to pay for Social HomeBuy discounts. 39

The National Housing Federation welcomed the Labour Government’s commitment to
affordable home ownership but said that:

          Mortgage subsidies are not a substitute for more investment in new homes…the
          Government needs to tackle a range of housing problems. With 100,000 families
          homeless and in temporary accommodation and a government pledge to reduce that
          number by 2010, it is vital that there is no substantial diversion of public funds away
          from building affordable rented homes. 40

A number of housing bodies welcomed the announcement of the new FirstBuy scheme, for
example, Sarah Webb of the CIH said:

         Our housing market is still in intensive care but this measure to give first time buyers
         access to a sizeable deposit as an interest free loan is a welcome adrenaline
         boost. We are currently building fewer than half of the homes we need and anything
         the government can do to support new house building and support construction sector
         jobs is welcome. 41

Commentators have noted that it is closely modelled on Labour’s HomeBuy Direct scheme
but is less generous. 42 Notes of caution have been sounded over the desirability of
encouraging first time buyers into a market when some economists are predicting substantial
house price falls to come. 43 A specific downside of the scheme is identified as its focus on
new build properties; these properties suffered substantial reductions in value during the
market downturn. Critics argue that if house-builders cannot sell their newly built properties
they should reduce the prices, rather than having values “propped up artificially” by the
Government. 44 Critics fear that the scheme will enable lenders to offer mortgages to first
time buyers by taking on significantly less risk – possibly making them less likely to lend to
those who do not qualify for FirstBuy. The pool of eligible buyers is also expected to be
small – London Councils has argued that, because of higher house prices in the Capital, at
least 75% of the funding would have to come to London to make an impact on helping first
time buyers. 45

     CIH Press Release, 25 May 2005
     ‘Building on Brown’s cheap mortgages plan,’ Financial Times Money, 28 May 2005
     CLG Press Release, 24 March 2011
     Money Guardian, “Another first step on the ladder,” 26 March 2011
     The Times, Who really benefits from FirstBuy?”, 26 March 2011
     London Councils Press Release, 24 March 2010

Similar concerns have been raised in relation to the NewBuy Guarantee Scheme. A
spokesperson for PricedOut, the pressure group for people who cannot afford to get on the
housing ladder, has reportedly said that the scheme:

         ...does not tackle the main problem, which is that relative to incomes, house prices are
         too high. The fact that the government has promised lenders that it will cover up to 5.5
         per cent of each loan if the borrow defaults – and each housebuilder must guarantee
         the first 3.5 per cent of each loss – allows housebuilders to raise their prices. 46

The Council of Mortgage Lenders has welcomed the scheme in broad terms but has advised
prospective users to proceed with caution – stressing long-running concerns over how newly
built homes are valued:

         Some new-build properties, include an extra premium on the sale price that can reduce
         as soon as someone moves into the property. 47

Some commentators have dismissed the NewBuy Guarantee as a “gimmick” that will assist
developers more than prospective buyers. Mortgage brokers have pointed out that 95%
mortgages are already available with comparable interest rates to those on offer under the
scheme. 48

Questions have been raised in the past about how well targeted low cost home ownership
assistance has been. The Public Accounts Committee identified a need for housing
associations and local authorities to improve the quality their of waiting list information “so
that they are better able to target help towards those in housing need who can afford to part-
purchase.” 49 CLG responded that since April 2006 waiting lists for low cost home ownership
assistance have been held by HomeBuy Agents who carry out “robust eligibility and
affordability checks”. 50

A further concern of housing organisations is that proposals to increase home ownership
amongst ‘marginal’ owners on lower salaries and in relatively unstable employment should
be accompanied by measures to provide improved financial protection for these owners. 51
Unemployed home owners are not entitled to Housing Benefit to cover their mortgage
repayments and may only become entitled to assistance with meeting the interest payments
after a certain period of unemployment. 52 In 2004 only 22.5% of home buyers took out
mortgage payment protection insurance although, according to the Council of Mortgage
Lenders, around 60% of buyers have some sort of protection either from employers or other
insurance. 53 It is unclear at this point precisely how assistance with mortgage interest
payments will be treated as part of the Universal Credit proposals.

It is certainly the case that home owners are not universally wealthy; a study published by
the Joseph Rowntree Foundation in 2003 found that half of all people living in poverty in

     Financial Times, “Fears over first-time buyer homes plan, 13 March 2012
     CML NewBuy advice bulletin
     The Telegraph, “Home-buying scheme dismissed as gimmick,” 12 March 2012
     Committee of Public Accounts, Nineteenth Report of 2006-07, HC134, March 2007
     Cm 7077, May 2007, p46
     This applies particularly to those who may qualify under the Social HomeBuy Scheme. See Promoting home
     ownership at the margins, Kim McKee, 2010
     See Library Standard Note SN./SP/737, Means tested benefits: help with mortgage costs for more information
     on the ‘safety net’ for home owners.
     ‘Prescott leaves first time buyers in the dark’, The Sunday Telegraph, 30 January 2005

Britain were home-owners. 54 At a Capita conference in September 2005 entitled, Extending
Home Ownership in England, Marianne Hood, Chair of the National Housing Forum,
emphasised that sustainable home ownership requires owners to be able to afford the cost of
living in their homes not just the cost of buying them. These issues are gaining in significance
as there have been some recent reports of a minority of shared owners living in housing
association properties facing mounting debt problems as a result of the credit crunch 55 while
there are more longstanding issues associated with the affordability of service charges
payable by shared owners in blocks of flats. 56

Dr Ian Shepherdson, a leading economist and commentator on the US economy, has
identified unrealistic expectations for home ownership as one of the major causes of
instability in the housing market in the USA and a major contributor to the current economic
downturn. Speaking at the Chartered Institute of Housing’s 2008 annual conference,
Dr Shepherdson pointed to the USA’s sustained low levels of interest rates, especially
between 2002 and 2005, and indiscriminate lending, as the major causes for pushing millions
of American citizens from rented accommodation into home ownership – an option previously
unobtainable and, in Dr Shepherdson’s view “ultimately an inappropriate option for the vast
majority.” Dr Shepherdson highlighted that for over 30 years US home ownership levels had
remained relatively static at around 64 per cent. By 2005 this had grown sharply to nearly
70 per cent – a growth fuelled by sub-prime lending.

The Chartered Institute of Housing’s then Chief Executive, Sarah Webb, spoke of the UK’s
“obsession” with home ownership:

          Whilst it is important that we help people to fulfil their aspiration for home ownership,
          the evidence clearly shows us that the state, lenders and individuals must take a
          responsible stance and make sure they take the right housing choice for them.

          We need to support people to make the best – not the worst choice. If you are one of
          the 45,000 people that get their first home repossessed this year then owner
          occupation won’t have proved to be the route to personal wealth. 57

Some commentators have questioned whether shared ownership really represents an
affordable option in some parts of England. The Association of London Government set up a
taskforce to look at the Capital’s housing problems in 2004. Reports indicated that the
taskforce found shared ownership to be out of reach of all but the most affluent key workers:

          One of its main findings is that key worker shared ownership accommodation is
          unaffordable in many London boroughs. It found properties on offer for up to £250,000
          in some central locations.

          Even on a shared ownership basis such prices would require a household income of
          around £50,000 to be affordable.

          The ALG's policy team is working on a system for assessing affordability which
          suggests that homes would need to be around £120,000 to be within reach of key

     Home ownership and Poverty in Britain, JRF Findings January 2003 Ref: 113
     Inside Housing, “Talks held over shared owners’ mounting woes”, 25 April 2008
     Inside Housing, “Charges making state schemes too expensive”, 11 April 2008
     CIH Press Release, Home ownership drive unrealistic, June 2008

          It is concerned that the grant is being so stretched to increase the number of homes
          built nationally that key workers will be priced out of the government's scheme in
          property hot spots. The taskforce will tell ministers that more grant will be needed to
          go into schemes in areas with high land prices, if key workers are to be helped. 58

There is an argument that, in a time of market uncertainty, Government funded shared
ownership schemes represent a relatively “safe bet” for lenders as they are insured against
default for most of the value of the loan under a mortgagee protection clause. However, the
National Housing Federation, the representative body of housing associations, has criticised
lenders for refusing to offer mortgages to key workers and other first-time buyers for shared
ownership schemes because they are considered as risky as sub-prime mortgages. 59
Landlords urged the Financial Services Authority (FSA) to change mortgage rules to
encourage shared ownership schemes in their responses to its consultation on mortgage
lending rules. Operating under the umbrella group, Promoting Shared Ownership, 22 housing
associations have produced papers in support of shared ownership: see http://www.shared-

There is some support in the housing world for the Government to regulate home ownership
to ensure that people do not borrow more than they can afford and thus help stabilise the
housing market. 60

     ‘Homes still beyond key workers’ means’, Society Guardian, 7 June 2004
     Public Finance, Banks refuse mortgages on low cost homes, 29 May 2009
     CIH Press Release, Home ownership drive unrealistic, June 2008


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