The announcement of Tony Blair’s departure from 10 Downing Street did not come as a real surprise. However the impact of his departure on the economy and the housing market could be.
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With the Labour Party facing continued criticisms over its failings in Iraq, education, the health service, and other issues, whoever takes over has a mammoth task in restoring faith in the party. Both the Conservatives and Liberal Democrats have made efforts to challenge Blair, and with the change in leadership, seemingly to install Gordon Brown at the helm, Labour will have its work cut out.
With controversy surrounding many of the government’s actions, whatever decision it takes, issues close to home will be of major importance over the coming months. One issue, central to any political party’s plans is that of home ownership and the state of the housing market. Since the house price recession of the 1990s the market has boomed, despite Base Rate rises over recent months aiming to rein in the growth. The housing market is now a key battleground for any political party. It has dominated many manifestos and strategies and will continue to do so for the next 12 months, and beyond.
Stepping onto the ladder
The subject of first-time buyers (FTBs) has been a contentious issue for many years. Despite continued drives by the government to help to improve the situation, with the launch of HomeBuy schemes and key worker initiatives, much of this pales into insignificance when placed in context with the rapid growth of house prices. The Council of Mortgage Lenders (CML) indicated that the cost of home ownership was causing many aspiring FTBs to reconsider their options. Despite the CML March findings indicating a monthly increase of 7,000 FTBs in the market to 33,100 FTBs, this was a drop of 8 per cent on the March 2006 findings.
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Despite the decline in FTBs, the government has made concerted efforts to improve the situation, with its HomeBuy scheme, allowing buyers to purchase a percentage of a property, which they can increase as their earnings increase.
The HomeBuy schemes were designed to help aspiring FTBs take the first steps on the property ladder, but recent reports have suggested limited take-up of the projects. However, Tamsin Hemsley, media relations manager at Nationwide, says the schemes have aided home ownership for those previously unable to make the step onto the property ladder. “We have been able to help a significant number of homeowners through the HomeBuy scheme, although it is a very small percentage of our overall book. It is a real concern that critics of the scheme are not looking at the number of potential home owners applying for the Open Market scheme. At the end of January 2007, over 9,000 applicants had been approved for the scheme.”
She adds: “We would welcome an extension of the scheme and more lenders getting involved. The right-to-own scheme proposed by Ruth Kelly will make affordable home ownership an achievable goal for more people.”
However, with the HomeBuy and key worker schemes, as has been stated by a number of commentators, due to continued house price growth, the funds needed to increase the borrowers’ share of the property must also rise, further highlighting the affordability divide. Much of this also centres on the continued lack of new homes being built. The government set a target of 200,000 new homes in the South East, to ease the supply and demand problem – a figure it is desperately short of achieving. While demand continues to outstrip supply, with eight potential buyers for every property on the market, the conundrum around FTBs, and also second-time buyers will continue.
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The continued growth of the BTL market is also a concern, with eager investors buying up properties typically associated with FTBs. Due to continued house price growth, a greater number of aspiring FTBs are forced to rent. While some have called for property investor portfolios to be capped to level out the market and give aspiring FTBs an opportunity to purchase a property, David Cameron, leader of the Conservatives, called for a further overhaul of the housing system, to benefit those who want to get onto the property ladder. “There is a huge gap in our country, between those who have achieved the dream of owning a home, and those who, despite working, striving and earning, can’t see how they are going to be able to achieve that dream.
“Isn’t it time to look at a scheme where we can say to council and housing association tenants, ‘why not change your rent payments into mortgage payments, so that over time you will own that home?”
Applying the pressure
Along with issues surrounding the lack of affordable housing, the Stamp Duty tax threshold and implementation of Home Information Packs (HIPs) has heaped further pressure on the housing market.
In his final Budget, Brown resisted calls for the abolition of Stamp Duty for FTBs – a move that angered the industry. Matthew Wyles, group development director at Portman Building Society, said: “Stamp Duty is clearly becoming the Chancellor’s favourite stealth tax. This levy is particularly unfair because its burden falls disproportionately upon the shoulders of those least able to afford it – FTBs.
According to the government’s own statistics, the average UK property now costs over £70,000 more than the current Stamp Duty threshold of £125,000.”
The previous decision to increase the minimum threshold to £125,000, from £120,000 was also met with scepticism, with figures released at the time revealing that, despite the increase, only 28,000 of every one million properties sold would be exempt under threshold. With the average FTB property price at over £135,000, the threshold rise failed to provide any real aid to the market.
While the failure to increase the Stamp Duty threshold to a more realistic level was met with disappointment in the industry, the Labour government’s plans to launch HIPs into the market, has caused widespread concern, and divided the industry.
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HIPs have been in the planning stages for a decade. Initially designed to improve the house purchasing process, the packs have come under severe criticism from a number of sources, following the dilution of the original plans.
The focus on speeding up the house purchase transaction, has replaced by the government’s drive to improve the environment, with Energy Performance Certificates (EPCs) making up much of the HIP.
Sir Menzies Campbell, leader of the Liberal Democrats, voiced his own concerns over the plans to introduce HIPs, and in a Housing Bill in November 2004, voted against their introduction, citing other alternatives as a way of improving the market and the process of buying and selling.
While most of the debate has centred on the dilution of the HIP, a number of commentators have also questioned the motives, with some labelling it a ‘stealth tax.’ Others have lambasted the lack of education given to those active in the housing market, from estate agents, intermediaries and home inspectors, as well as consumers. While many believed the 1 June introduction of HIPs would lead to a stampede of properties being put on the market, this has not happened, largely because many consumers are still unaware of their introduction.
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Indeed, following a House of Lords report, indicating concerns over HIPs and the strategy for implementing them into the market, both opposition parties called for changes to the planned policy. Michael Gove, Shadow Housing Minister, said: “The House of Lords report underlines how badly the government has handled the introduction of HIPs. The government clearly needs to think again to get this policy right. As it stands the hassled homebuyer gets no benefit from HIPs and environmental regulation is faulty.”
Liberal Democrat shadow local government secretary, Andrew Stunell MP, added: “This report looks like the final nail in the coffin of this ill-fated project. The government should delay the implementation of HIPs until a proper evaluation can be made on how they will work.”
However, the Liberal Democrats, in their criticism of HIPs, admitted that EPC’s ‘had a rightful place in the market’, and would aid the process. Stunell added: “EPCs should go ahead separately to give people buying new homes important information.”
Alongside HIPs, much attention in the mortgage and housing markets has been diverted towards improving the state of the environment. A number of lenders, including the Ecology and Yorkshire Building Societies and The Co-operative Bank, among others, have launched ‘green mortgages’ to appeal to environmentally aware borrowers, while a number of lenders have committed to offset the carbon footprint of a mortgage by making a donation to the Carbon Trust, or planting trees, for example.
While much of the green legislation suggested comes from Brussels, and the Kyoto Agreement, a greater number of potential borrowers are also taking an interest in the environment and ways to offset any damage that they are causing to the earth, be it by reducing their carbon emissions, or making changes to help offset their carbon footprints.
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As part of his campaign to be named Prime Minister, Brown unveiled plans for ‘eco-towns’, designed to meet ‘pent-up’ demand for housing, while also tackling the green issues dominating the agenda. But Paul Hunt, head of marketing at Platform, says: “The environment is becoming a much more important issue, and I expect it to see some growth. However, in general, all the political parties have to think of ways to tackle the hurdles in home ownership.
“Building new, energy efficient homes and other green initiatives should be applauded, but this doesn’t hide the fact that there are not enough homes being built.”
Much to strive for
Looking at Blair’s legacy, David Hollingworth, head of communications at London & Country, admits that the market could take pluses and minuses from his time in charge of the country. “Labour’s interest in housing has been keen with a backdrop of a booming market and rapidly rising house price inflation. There have been some flops in its investigations of alternatives to the current market. There has also been wide criticism for the Stamp Duty banding, which has failed to keep pace with house price increases and seen more homes drawn into higher Stamp Duty liability and other debacles such as the Self Invested Personal Pensions (SIPPs) u-turn.
“However there have been more positive aspects and the government has looked to address the problems around the lack of affordable housing, most notably for key workers. Recently it has managed to bring lenders on board with Open Market HomeBuy in order to extend the scope of the scheme, which will be vital if it is to be a success.”
It is clear that the housing market is a key battleground for the political parties. The announcement that Blair is to step down on 27 June could have further implications of the housing market, with Brown thought to be against HIPs, in their current format. While the leadership contest begins within the Labour party, each party will be doing all they can to show they are leading the way in the field of helping home ownership and tackling the problems within the market.
