Stuart Miller is customer director at Newcastle Building Society
The Budget is set for 11 March, and we are all waiting to see just how radical Sajid Javid is going to be.
Boris Johnson and his right hand man Dominic Cummings have both been very vocal about shaking things up, demolishing long-accepted norms in how the civil service is run and introducing big, meaningful change.
What that all means in practice is still rather less clear, but Mr Javid’s first budget is likely to give us the first round of action.
We’ve already had some indication of what’s in store for the housing market, with both the Conservative manifesto and Queen’s speech suggesting that there will be support confirmed, particularly for first-time buyers.
In January, the government used the Queen’s speech to announce plans to make owning a home more affordable. This includes the new First Home scheme making homes available at a discount for local first-time buyers.
According to the government, councils will be able to ‘use housing developers’ contributions to discount homes by 30% for people who cannot otherwise afford to buy in their area’.
The Affordable Homes Programme will also be renewed, building more homes for rent and delivering a new shared ownership offer.
The details of these schemes are going to be fundamental to whether or not they deliver real access to homeownership for would-be first-time buyers.
We are hugely supportive of any measure to support those wishing to get on the housing ladder, but we are also mindful of schemes that have been announced with fanfare in the past and then failed to take off.
Discounting homes presents some tricky issues for lenders and those buying them. How do you accurately value a property bought for less than market value? How do you calculate the loan-to-value on the mortgage needed? What happens to the resale value if and when the homeowner wants to sell?
Who benefits from that discount on resale? What incentive is there going to be for developers to build homes for discount at scale? What effect will this have on prices in surrounding areas?
We need to see the answers to these questions sooner rather than later if we are to deliver on the promise of these schemes – homes take years to build.
There is also the possibility of extending the Help to Buy scheme beyond 2023, when a scaled back version with regional price caps is currently due to end. Help to Buy has been criticised for inflating values and filling developers’ pockets but it has also supported lenders offering higher loan-to-value mortgages.
Before the scheme came in there was a real block on lenders prepared to scale LTVs up to 95 per cent – a level that is now needed by many first-time buyers, particularly in London and the South East where property values are so high and incomes have simply not kept pace.
First-time buyers are always the popular vote-winner for politicians looking to do something for the housing market, but there is also a real need to focus further up the ladder.
Now is an opportune moment to do something meaningful, precisely because this government does not need to win any votes for the next five years.
While mortgage rates are at record lows and wage growth outpaces inflation, it might seem like the housing market is in reasonable health. In many ways, it is. Prices are still rising, though by a far more sustainable rate of between 1 and 2 per cent annually.
However, there are some really big structural challenges in the market: stamp duty has become a massive block on all moves after the first.
It is choking the purchase market, pushing up house prices and exacerbating the problem of single person households remaining in housing stock that has five bedrooms.
The price of moving is prohibitive – it makes no sense. While in some ways, reducing stamp duty for older homeowners who are ‘already rich’ will be seen as deeply unpopular with younger and poorer voters, doing it will nevertheless have a positive effect on the whole housing chain, which in turn will make it easier for those same people to get a foot on the ladder. If there was a time to be brave about this, now is it.
