Home ownership

[edit] Background

A house is most people’s biggest asset. It is a symbol of security and it is a stake in the future.

In 1984 in her address to the National House Building Council, Margaret Thatcher said:

The spreading of home ownership is a worthy philosophy. Why should not everyone in the UK be a man or a woman of property? It should be as common to own a house as it is to own a car because the UK is a nation of people whose history and character is one of independence. Where property is widely owned, responsibility and freedom flourishes. Frustration and anger is nurtured by those who are dispossessed with nothing to lose. Political freedom is supported by economic freedom. In Wilfred Blount’s words:

Nor has the world a finer thing

Though one should search it round

Than thus to live one’s sole king

Upon one’s own sole ground

In five years of her government 1.7m additional people acquired their own homes averaging 340,000 first-time buyers per annum. Home ownership reached 63% in England but research by the Housing Research Foundation suggested a goal of 80% was achievable.

[edit] Current situation

The Halifax First-Time Buyer Review published on 29th December 2012 reveals how little subsequent progress there has been. Halifax report that in 2011 there were just 193,000 first-time buyers and in 2012 there were 216,000. According to the English Housing Survey (bulletin 7 July 2012) home ownership is now 66% and in London is less than 50%.

To better understand the reasons for the lack of progress, the period before the 2007 banking crisis is worth studying. 2006 produced 402,800 first-time buyers. This was at a time when mortgage payments consumed 50% of disposable income and required a deposit of 10%. In 2012, deposits were substantially higher, with many funding agencies looking for a minimum 20%. However, mortgage repayments were on average just 27% of disposable income due to historically low base rates.

This suggests that progress is hindered by the inability of first-time buyers to fund deposits.

The Halifax report suggests that parents prepared to help finance their children’s down payments has doubled since 2005. In 2012, 65% of first-time buyers had parental assistance.

[edit] Current strategy

• It is often suggested that scarcity of building land and planning regulations are the key obstacles to house building in the UK, and successive governments have focused their attention on both criteria - arguably to little effect. The Government has committed to releasing public sector land with the capacity for up to 100,000 new homes. In addition, the National Planning Policy Framework gives local authorities a duty to assess local demand for housing in their area.
• The Government's £80 billion Funding for Lending Scheme is intended to help bring down deposits by offering banks and building societies cheap finance if they increase lending to businesses or households. The Bank of England's quarterly Credit Conditions Survey (Q4 2012) sited the scheme as one of the main reasons that mortgage lending increased at the end of 2012 and projected further increases in 2013. However, the Halifax report suggests that at best this might reduce deposits by 5%.
• Where household income is below £60,000 per year, “First buy equity loan” schemes allow the government and house builders to provide 20% loan capital in return for shared equity in the borrowers house. However a cash deposit and a commercial mortgage are required for the remaining 80%.

[edit] Other possibilities

• It might benefit parents if residential property could be put into a self-administered pension scheme. Currently this is not allowed, even though a car, business premises or a factory can be in a pension scheme.
• Mortgage tax relief could be re-introduced for mortgages up to the average price paid by a first-time buyer in Greater London. The tax relief mechanism could include legally drawn up mortgages arranged with self-administered pension funds.
• Apart from providing a tax incentive to buyers who switch from renting property to ownership, this two pronged proposal might encourage parents to use their pension as a provider of mortgages to their children (possibly at a better rate of return than the pension funding markets are providing).
• The threshold attracting zero stamp duty could be raised to match the average price paid by a first-time buyer in the capital.

[edit] Find out more

[edit] Related articles on Designing Buildings Wiki

• Housing shortage.
• National Planning Policy Framework.
• Self build.
• Self build initiative.
• Shared equity / Partnership mortgage.
• Shared ownership.
• The rise of multiple property ownership in Britain.
• The state of UK construction August 2012.

[edit] External references

• Halifax press release: First-time buyer numbers at highest since 2007, But still nearly 50% lower than in 2006.
• English Housing Survey (bulletin 7 July 2012).
• Bank of England's quarterly Credit Conditions Survey.