Budget boost for home ownership could affect private rented sector

The Chancellor delivered new measures in the Budget aimed at boosting home ownership.

Beneficiaries include the  new homes, secondhand homes and mortgage markets, plus the ‘build to rent’ sector.

The wide availability of 95% mortgages could have profound implications for the private rented sector, with more tenants encouraged from next January to buy their own homes.

Brendan Cox, managing director of Waterfords estate agents in the south east, said: "It will have an effect on the whole of the market, as people who couldn't afford such a large deposit will now have the help they require. It means first-time buyers will be able to get to the market earlier and get out of rented accommodation."

Under the ‘Help to Buy’ banner – described by George Osborne as a dramatic intervention in the housing market – the NewBuy mortgage guarantee scheme will be extended across the whole housing market to encompass secondhand homes.

This will kick in next January and will run for three years. During this time, buyers of both new and secondhand homes will be able to buy a property worth up to £600,000 with a deposit as low as 5%, underwritten by a £130bn government mortgage guarantee scheme.

Meanwhile, from next month, there will be an extension of the FirstBuy shared equity scheme to all buyers – not just first-time purchasers – of new homes.  

Purchasers of new homes up to £600,000 with just a 5% deposit will be able to benefit from a £3.5bn ‘pot’ to support shared equity loans. This means they would be able to get a 20% loan interest free for the first five years, and repaid when the house is sold.

The Chancellor also announced an investment in 15,000 new affordable homes plus a five-fold increase in the Build to Rent fund, which backs institutional investment in new homes built for the private rented sector.

He is also considering extending the “successful” Funding for Lending scheme. He told the Commons that he is actively talking to the Bank of England about this.

The spectre of people buying properties with small deposits sparked mixed reactions from outside government circles.

Angel Mas, president of mortgage insurance Europe at Genworth, said it could expose the UK taxpayer to big liabilities – potentially a multi-billion pound loss in the event of a  property crash.

He said: “It is extraordinary that – given the existence of capacity and expertise in the private mortgage insurance sector – the Government has not yet considered the involvement of private mortgage insurance in order to reduce the risk to the UK taxpayer. 

“Given the role of irresponsible lending in the crisis, this seems an oversight that puts the taxpayer at unnecessary risk, whilst leaving the Government in the hands of the banks when it comes to ensuring prudent lending standards are maintained under any extended scheme.”
 
Lenders themselves were cautious. Council of Mortgage Lenders director general Paul Smee said: “The announcement of Help to Buy which will help mitigate the risk of those lending low deposit mortgages shows a positive re-focus on promoting home ownership. The benefits will not be immediate, and we need to look at the detail of implementation, but this could have a significant impact in the medium term.”

Charles Haresnape, managing director of residential mortgages at Aldermore, said the Government might have to do more. He said: “The UK housing market is still plagued by underlying issues such as a shortage of new housing and overpriced land values. It may be that the Government has to also consider more fundamental changes if it wants to get the housing market moving once again.”

Meanwhile, the British Property Federation has welcomed the fivefold funding increase to kick start ‘build to rent’ schemes. The £200m made available in December’s Autumn Statement will be expanded to £1bn.

Ian Fletcher, director of policy at the BPF, said: “It’s encouraging the Government’s confidence in build to rent has been reciprocated and we are delighted to see that the equity funding was heavily oversubscribed. Working in partnership with Government, the sector should deliver an exciting and quality array of homes for renters.”

The provision of 15,000 new affordable homes was given a more muted welcome. Richard Sexton, director of e.survchartered surveyors, said it was just a drop in the ocean.

He said: “More homes need to be built – and the Government needs to do much more to help. We need 270,000 new homes a year in England to meet demand, yet in 2012 there were just 105,090 housing starts. That’s a critical shortfall.”

He said: “There is enough brownfield land to accommodate almost 300,000 homes. But the developing process is complex and tedious. It needs to be simplified.”

Also in the Budget are promises to consult on proposals allowing shops to change into homes, and agricultural use to change to residential.

The British Property Federation said it was keen to see more detail.

Chief executive Liz Peace said: “Retail to residential conversions could be an important step in breathing life into our high streets, and we would very much encourage a flexible approach, particularly in areas with increasingly obsolescent retail stock that is unlikely to be brought back into retail use.

“We welcome the proposal to consult further on change of use from agricultural to residential. It’s crucial that the countryside remains a place of growth, industry and business rather than an enclave of the retired and wealthy.”

* Shares in house builders and estate agents bounced up yesterday afternoon following the Budget.

Shares in LSL, the property group that is parent to chains Your Move and Reeds Rains, rose after Countrywide's successful flotation in the morning.

Beneficiaries among house builders included Barratt, Bellway, Bovis, Persimmon, Taylor Wimpey and Redrow.