The government has introduced a range of policies designed to boost the delivery of new homes and increase low-cost home ownership for first-time buyers. To date, it has been difficult to build up a complete picture of how these various initiatives are likely to affect the housing market when taken together, especially when the impact of other government housing policies – such as reforms to Stamp Duty Land Tax – are factored in.
A new piece of research by the property firm Savills has recently attempted to analyse the potential impact of all these policy changes in detail. What conclusions did they reach?
How much do these schemes overlap?
Different government schemes attempt to make it easier for young would-be homeowners to get on the property ladder in different ways. These include:
- Help to Buy Equity Loan – The “Help to Buy” equity loan scheme has been one of the government’s flagship housing policies, supporting 62,000 property sales since it was launched in April 2013. It involves the government lending a buyer 20% of the value of their home interest-free for the first five years, so that they only need a 5% deposit and a 75% mortgage to make up the rest. Current government policy is to extend the scheme until 2021 and double the government’s equity stake to 40% for homes in London, where the first phase of the scheme has had little effect because of the capital’s high property prices.
- “Starter Homes” – Starter Homes are another scheme which grants a discount of at least 20% on the market price of a new-build home to buyers under the age of 40. How the “market price” will be determined hasn’t been fully established yet, but the maximum price of a property bought using the scheme will be capped at £450,000 in Greater London and £250,000 elsewhere (which would be the equivalent of £562,500 and £312,500 respectively in the open market).
- Shared Ownership – The government has also announced that significant funding will be made available to facilitate the delivery of 135,000 new shared ownership housing units (a model whereby tenants who can’t afford to purchase a whole property can purchase the equity in instalments while renting the remainder from a social landlord).
- Tax Reforms – The government has also attempted to reduce the competition between first-time buyers and buy-to-let landlords for the limited supply of new housing by dramatically reducing the amount of mortgage debt they can deduct against tax and imposing an additional rate of Stamp Duty on newly purchased rental properties.
One of the points which Savills particularly draws attention to in its analysis is that the government has indicated it will be possible to use a Help to Buy equity loan to buy a Starter Home. Potentially, this would mean that a first-time buyer in London who bought a property worth £300,000 would get 20% off the market price – so their buying price would be £240,000 – and then, if they only needed to pay 5% as a deposit, their upfront cost would be just £12,000. Given that an unassisted buyer might need to pay a 20% deposit on the same property – which would be £60,000 – this is clearly a very big discount.
Will these schemes solve the housing crisis?
Savills concludes that if they work in tandem like this then these housing policies are likely to make it easier for middle-income working households in London to get on the capital’s property ladder.
However, their overall analysis of the government’s housing policies is pessimistic, for two reasons. Firstly, Savills argues that – partly because they can be used in tandem – Help to Buy, Starter Homes and shared ownership are likely to cannibalise each other’s success, meaning they will effectively provide a lot of assistance to a relatively narrow section of the market (particularly households in inner London with an income between £50,000 to £90,000) rather than genuinely spreading home ownership more widely.
Secondly, this is compounded by the fact that the majority of Starter Homes are likely to be delivered through changes to planning policy which will see them reclassified as a form of Affordable Housing, so private developers will be required to deliver a certain percentage of Starter Homes as part of major developments. The two problems with this are that many of these properties would have been built anyway – Starter Homes are likely to simply replace existing affordable housing commitments rather than constitute genuinely new homes – and it represents a further shift in Affordable Housing policy away from using it to help genuinely low income households towards helping relatively affluent ones instead.
It is for these reasons that Savills forecasts the number of households renting privately will grow by a further 1 million during the next five years despite the government’s efforts to boost homeownership, as they think the overall impact on new supply is likely to be fairly minimal. However, they predict that the impact of the government’s buy-to-let tax reforms will be to encourage large institutional investors to join the sector at the expense of small private landlords, as the former group doesn’t have to pay the new higher rates of Stamp Duty when they come into effect next April.
So somewhat perversely, a government which made huge efforts to spread private home ownership among the masses may find that its biggest legacy in housing is a larger, more professional private rented sector instead.