The issue of housing stock has always been a bone of contention in the UK housing market.
Driven by supply and demand and the UK economy resting on its success or failure, the issue of housing is a very real concern, and has been for the past few decades.
Gordon Brown, in one of his first moves since becoming Prime Minister, admitted that the current housing system in place had marked flaws that had to be addressed.
At the top of his agenda is a plan to increase the number of affordable houses in the UK, and he backed this up by announcing that by 2020, the Labour government planned to increase housing stock by a further three million properties, helping aspiring first-time buyers, and assisting those keen on moving up the property ladder.
However, since the 1950s, practically every single Prime Minister, or opposition party, has called for improvements to the housing market and stock, so the question has to be asked – does the housing market need such a revolution; and are the government’s plans achievable?
Improving affordability
Since coming to power less than three months ago, Brown has been quick to distance himself from the previous Blair government.
While Blair focused much of his attention across the Atlantic as well as issues affecting health and education, Brown, in his first statement to the British people, pledged to improve the way the housing market operates, with plans to extend the various HomeBuy schemes in operation as well as increasing the available housing stock.
A number of changes have already been implemented to the HomeBuy schemes, with the government adding an extra product to the Open Market HomeBuy offering.
As part of the new range, applicants will be able to receive an equity loan up to 17.5 per cent of the property purchase price, and will be able to obtain a mortgage from any regulated lender.
The government confirmed that there would be no ongoing charge or interest on the loan, but admitted that any uplift in property value would be shared with the government when the loan was repaid.
Applicants will also have the opportunity to purchase the remaining share of the property at any time to attain full property ownership – a move that previously would have been out of the reach of many aspiring first-time buyers.
While the various HomeBuy schemes have been heralded as a way to improve housing stock for first-time buyers and young professionals, it sadly remains the case that not enough potential borrowers are aware of the opportunities available to them.
Having been launched in October 2006, the various HomeBuy schemes have all had steady, but not resounding, completions and only now are borrowers and intermediaries beginning to realise the possibilities in this sector.
However, the properties available within the various HomeBuy schemes have also come under criticism. Speaking to Mortgage Introducer, a broker suggested that those who purchased property on the scheme would be unlikely, at any time, to purchase the property outright as a result of continued house price rises.
He says: “It is very rare that, should borrowers get onto this scheme, they will be able to purchase the property outright. Although they can increase their equity in the property, house price inflation is usually much more than that of income so most will be unable to completely buy the property.”
A solution to the continued housing supply and demand issue has been the call for more affordable properties throughout the UK, rather than in a select number of areas, which led to the government’s pledge to tackle the drastic shortage of housing stock in the market.
Gerry Bell, head of mortgage marketing at GE Money Home Lending, praised the government for its commitment to tackle the problem, but suggests that its aims, are, at the moment, unachievable.
“The commitment by the government is encouraging, but if past record is anything to go on, no matter what party holds power, this appears to be a highly ambitious plan and it is still not clear when buyers, particularly first-time buyers, will see a significant upturn on new builds during this 12-year plan,” he says.
“Housing shortages are made worse by the level of regional demand as people want to live in the larger cities. The government and the industry can help in the short term to make entry to the housing market easier, by creating a stable economic low interest rate environment.
"The government can also help by removing or reducing tax barriers to home ownership and it should be thinking of greater incentives for first-time buyers and key workers wanting to buy a home if their ambition is to create more home ownership.”
James Carter, IFA at Independent James, adds: “I feel that three million new homes by 2020 is not achievable. Most large construction firms are not interested in rushing through construction as they have benefited so well in the past due to delays and rising prices.
"A number of issues need to be tackled. For instance, the pressure that this will put on the infrastructure of the areas where a lot of these homes are being built. Immigration is definitely underestimated by the government and it has not properly accounted for the EU accession countries’ residents moving over here.
"Very few of these have actually purchased a property yet, but in a few years when they are settled, this will create a new wave of demand and I don’t see how supply can keep up. The government is tackling the end problem rather than the root cause.”
Policy question mark
Despite the government’s insistence that it plans to overhaul the market, it is no surprise that some are sceptical.
With Self Invested Personal Pensions (SIPPs) experiencing a u-turn shortly before their launch, and Home Information Packs (HIPs) undergoing several transformations before their eventual – and partial – release into the market, it is no surprise that lenders are somewhat reluctant to fully embrace the government’s plans.
Over 50 per cent of members of the Intermediary Mortgage Lenders Association admitted that they had little confidence in the government’s housing policy.
Paul Chafer, sales and marketing director at Stroud & Swindon Building Society, agrees with the organisation’s sentiments. He explains: “The government’s housing pledge is achievable. However, we have seen government initiatives introduced in the past, which have failed to deliver.
“In order for this initiative to become a reality, the government must ensure it has enough space to build these homes and that the available space is viable building land.
"Discussions of flood plains being used as potential development sites have, unsurprisingly, caused outrage among those who have watched the recent devastation unfold. Will consumers be able to mortgage or insure these properties?”
Chafer adds: “If the housing pledge does go ahead successfully, the government must ensure the new available housing stock goes to those most in need.
"Helping first-time buyers should be of primary concern, not only by increasing the amount of affordable housing available on the market, but also reviewing the existing Stamp Duty legislation.
“Of course, developers must also take into consideration the continued demand for single occupancy properties. The current housing crisis means we cannot continue to build six-bedroom properties for a household consisting of three people.
"Hopefully, the government will take these factors into consideration, in order to ease this problem before it gets much worse.”
Andrew Loveless, marketing manager at Beacon Homeloans, adds that the government’s housing plans neglects to thoroughly detail the areas involved, but overall, he welcomes its pledge to improve the contentious issue of affordable housing.
He says: “The housing Green Paper certainly sets out to tackle the housing crisis, especially for first-time buyers and those in social housing.
"But is this pledge achievable? This depends on how easy it is going to be to achieve planning permission through local councils, as there may be greater resistance than previously thought.
“However, even if planning permission is granted, it is inevitable that some of these homes will be built on flood plains. While politicians will want to push on with this, with a view that better flood defences will be in place if homes are to be built in the area, there will undoubtedly be a great deal of sensitivity to this at a local level.
Loveless concludes: “In addition, as the demand is so high, the issue of affordable housing must be addressed. New builds with incentives to purchase loans that offer free legals and valuations are a great way to help meet these needs, along with equity loans, which help first-time buyers to get their first foot on the housing ladder.”
Stifling stock
The buy-to-let market has also been blamed for swallowing up any available housing stock, with suggestions that many property investors were leaving some properties uninhabited and, after a short period of one to two years, selling the property on at a profit.
However Andy Wiggans, director of mortgage products at Mortgage Express, says: “Housing demand continues to outstrip supply across all sectors of the market. Within this, the buy-to-let market remains strong, well supported by good tenant demand and steadily rising rents, both of which are driven by an increasingly mobile and fragmented population.
"Rather than driving changes in the housing market, buy-to-let fulfils a valuable function in responding to shifting patterns of demand.
"Landlords and investors wishing to participate in the investment property market have remained very positive and are continuing to use buy-to-let as a long-term investment vehicle.”
It is clear that the housing market is in need of change, with the issue of supply and demand only likely to escalate. However, with the UK economy driven by the housing market, any change will be resisted and will need time to bed in before makes any significant impact.
Improving suitable housing stock, not just one and two-bedroom new build properties, will undoubtedly help the market but will not be an instant panacea for the problem that has faced the UK property market for decades.
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