Housing is one of the biggest challenges facing the new prime minister. So will Theresa May continue with existing schemes or adopt a brand-new approach to affordability issues and the chronic property shortage?
When launching her Conservative Party leadership campaign at the end of June, home secretary Theresa May referred to the UK’s longstanding emphasis on homeownership. She then spoke of the current difficulty for many people in both getting on the housing ladder and making mortgage repayments during a period of austerity and steeply rising property prices.
“You may have your own home but you worry about paying the mortgage,” May said. “You can just about manage but you worry about the cost of living and getting your kids into a good school.
“If you’re young, you’ll find it harder than ever before to own your own home.”
Now ensconced for two months as both Tory leader and prime minister, May has helped her new government to settle down and make significant changes already to the mortgage and housing markets.
As it grapples with the mechanics of leaving the EU, it has abandoned former prime minister David Cameron’s target of closing the budget deficit by 2020. The Autumn Statement on 23 November is expected to contain a further package of tax cuts and fiscal stimuli.
Since the Brexit vote, the Treasury and the Bank of England have collaborated to significantly ease capital restrictions on banks in order to boost lending.
BoE governor Mark Carney, meanwhile, led a unanimous decision by the Monetary Policy Committee to cut interest rates to 0.25 per cent and provide billions of pounds more in quantitative easing. He also launched the innovative Term Funding Scheme, offering banks and building societies up to £100bn over the next year at beneficial rates for four years. This is in effect an updated version of Funding for Lending, which closed for mortgages in January 2014.
The Council of Mortgage Lenders says the TFS should help lenders to offset financial pressures resulting from lower interest rates and to pass on the Bank rate cut, which some banks have yet to do.
The range of macro measures will have a significant impact on the mortgage market, with banks free to lend more and many grappling with the effect of rate cuts. However, there remains uncertainty about mortgage schemes such as Help to Buy and the wide range of saving schemes on offer to help borrowers save for their first deposit.
MP for Croydon Central Gavin Barwell was made housing minister in July, replacing Brandon Lewis and becoming the fifth such minister since the Conservatives took office in 2010.
Significantly, the position is not a Cabinet-level post as it was under former Labour prime minister Gordon Brown, when Yvette Cooper was housing minister.
Barwell is also minister of state for London, meaning he will divide his time between the two roles. However, his position as housing minister is more senior compared with when an earlier predecessor, Kris Hopkins, was a mere under-secretary of state during David Cameron’s premiership in 2013.
Under former Labour leader Ed Miliband, the role of shadow housing minister was beefed up to attend Cabinet when he promoted Emma Reynolds in 2012.
Miliband’s successor, Jeremy Corbyn, prolonged the decision and shadow housing minister John Healey continued to attend Cabinet until he resigned in July. He has not been replaced.
Labour’s current leadership contest between Corbyn and challenger Owen Smith will end on 24 September, with Corbyn widely predicted to emerge victorious. Unless Labour gains a new focus, the ‘personnel politics’ of the housing portfolio will leave many in the sector underwhelmed, with a part-time minister and no opposition.
With most housing policy driven by the Treasury, the industry’s attention will centre on the Conservatives’ party conference in Birmingham next month, which is likely to be the occasion for big policy announcements by the chancellor and key Cabinet ministers.
Cicero chief corporate counsel Iain Anderson says: “Housing remains a key priority for the Government and I am expecting to see the Conservatives talk a lot about this at their party conference, and for it to feature in the Autumn Statement at the end of November.”
The key aim for many is to build more homes and end the housing crisis that has gripped the country for a decade.
Building Societies Association head of mortgage policy Paul Broadhead says his members want more housebuilding and government support. He says: “The private sector still isn’t delivering sufficiently and is unlikely to do so any time soon. The increase in affordability issues has started to spill over into the number of homes being built and, if the private sector isn’t delivering, the Government has to step in.
“We will make some suggestions in our Autumn Statement submission but it will be focused on housebuilding.”
Former chancellor George Osborne never let a party conference, Autumn Statement or Budget go by without announcing a new savings scheme. During his tenure he made a number of radical changes to pension withdrawals, Isas and the taxation of savings, some of which were linked to housebuying.
Now that the BoE has cut interest rates to 0.25 per cent and the return of normalised rates looks even further away, more savings support could emerge.
But still-new Chancellor Philip Hammond is known as a more sober politician than Osborne and may shy away from controversial schemes that appear to inflate the housing bubble, such as Help to Buy.
The Help to Buy mortgage guarantee scheme has been criticised by many economists for inflating house prices without a subsequent boost to building. It is due to expire in December this year and Hammond will have to decide whether to extend it.
Osborne also tried to tie pension savings to people’s attempts to get on the housing ladder.
Anderson says: “On policies to support savings, there is likely to be a slowdown in the Osborne-inspired revolution but better-targeted pensions relief all around.”
The Help to Buy shared equity scheme, meanwhile, will run until 2020 alongside Help to Buy Isas, which Osborne introduced to help renters save for a deposit, topped up by a 25 per cent government contribution.
Broadhead says: “There was market failure at the time of the guarantee scheme with most banks not lending to individuals with lower levels of deposit. That has probably served its purpose and the Government is confident that banks will continue lending without the guarantee, or it can come from commercial providers.
“But the equity scheme and Isa are going to run and run. Both are welcome interventions that are helping people to get on the housing ladder.
“[However,] they are still treating the symptom and not the cause. They are demand-side interventions that are not doing a great deal for building. With more building, there would be less need for these schemes.”
GPS Economics director Gary Styles says the Government must be clear about how Help to Buy will end or risk the industry becoming over-reliant on it. He cites as an example Freddie Mac and Fannie Mae in the US, which were introduced during the 1930s as temporary housing support schemes but are still running in some form today.
“Most schemes need orderly exit processes,” says Styles.
“We need more housebuilding in the medium term but in the short term we still have weak volumes, especially if you strip out buy-to-let. In the Autumn Statement, we need some clarity over the longer-term future of these schemes.
“My concern is that some people are becoming addicted to them. There has been a lot more clarity over how some short-term banking schemes would end and we need the same for mortgage support initiatives too.”
Osborne also charted a new course on property taxation with a series of major adjustments.
He reformed stamp duty in December 2014 with a higher rate of 12 per cent for homes worth more than £2m and an end to the slab system.
He also imposed capital gains tax on foreign buyers of properties, and cracked down on stamp duty ‘loopholes’ where wealthy individuals bought homes through corporations.
In buy-to-let, Osborne taxed landlords harder than ever, with a new stamp duty of 3 per cent added to all second homes and buy-to-let properties purchased. He also scrapped mortgage tax relief on landlords’ income above a certain threshold.
Housing experts have seen no change so far in the Government’s approach under Prime Minister May as the pressure to remove the budget deficit moves to an even looser timeframe.
According to the BoE, the risk of a downturn and reduced revenues in the wake of Brexit negotiations looms large.
“The pressure for revenue will be significant so we will see a large shift to stealthier ways to raise tax under the new Chancellor,” says Styles. “I would be surprised to see any backing-away from that approach in the Autumn Statement.”
The CML reported the first year-on-year decline in mortgage lending for more than 12 months in July as the market weakened. Estimated gross lending totalled £21.4bn, marginally softer than in June. But the decline is small and lending still robust compared with recent years. Some claim the dip is simply a normal summer lull that is slightly more pronounced than usual.
“Lending is standing up pretty well. People are still getting mortgages and housing,” says Broadhead. “I have the impression that confidence remains high in the mortgage market on both supply and demand sides.”
Prime Minister May faces a range of housing-related challenges, from increasing construction and lowering mortgage costs to managing lending flows in the wake of government schemes. She also faces pressure to boost the role of housing minister after so many changes to its status in recent years.
Chancellor Hammond will have to manage carefully the eventual exit from Help to Buy, and balance his fiscal actions against a very active monetary policy.
Housing and mortgage policy is one of the biggest political and economic challenges of our times. It is likely to play a central role for this new government.
Timeline of key political dates
Labour leadership election results
Conservative party conference, Birmingham
Chancellor Philip Hammond’s Autumn Statement
Brexit negotiations are predicted to begin as UK triggers Article 50
UK is expected to leave the EU
Expected date of the next UK general election
What should the new Government do to boost housing?
Lentune Mortgage Consultancy
Well, the past few months have not been boring, have they? As we now have a new prime minister, it is important to consider what we want from her in relation to the UK’s housing policy.
Let’s start with Right to Buy. In my eyes, the start of the housing problems in this country was the selling-off of council houses in the 1980s, when the Thatcher government did not replace the sold-off housing stock.
Yes, many got to buy their previously rented homes at a discount – but at a wider cost. And now, we are back to where we were then: the Government is still selling off council houses, not building many to replace them, and in some places buying back the ‘old 1980s stock’ at open-market prices. You couldn’t make it up.
So, to put it simply: build more council houses.
Next, the housing minister – in the Cabinet, please. Housing is one of the most important topics in the country, yet clearly not deemed important enough by some.
Planning processes need addressing – the current structure is only going to hold back development. Yes, we need to protect green-belt land, but we also need to address our housing issues.
I think we all know that the new prime minister has a huge job on her hands – but for too long housing issues have been shifted to one side. It is time to change that.
Since January 2013 the UK government has undertaken a number of initiatives to stimulate the housing market. It has paid dividends.
The market is in reasonable health, so the key issue is not what the new government can do for the housing market but what it can do to boost wages for younger people.
We have seen the promotion of an economic recovery on the back of low wages.
The Government could manipulate the housing market in favour of one section of the population but I do not see how it can stimulate it for everyone. If it comes up with an initiative for first-time buyers, it will alienate next-time buyers or landlords.
In the absence of building by housing associations and councils for low-income people, we need landlords to meet housing demand for tenants.
You have to question whether the support schemes, such as Help to Buy, are helping low-income people or first-time buyers any more, rather than simply boosting profits for housebuilders. In certain parts of the country it may be more prudent and economical to buy a second-hand property.
The Government has tackled 70 per cent of the problems in the housing market by luck or design and now it needs to boost incomes to help people get on the ladder.