The rescue package breaks down as follows:
The DCLG has worked with a cross section of industry representatives in compiling the plans including lenders, housebuilders, and in particular local authorities.
DCLG director-general of housing and planning Richard McCarthy is keen to stress the role that councils and housing associations play, with the success of the housing package being in “our collective hands”.
Dealing with each of the strands of the housing package in turn, first up is the HomeBuy Direct scheme. Work is underway to fine tune the scheme, with the aim of launching it early next year. In the interim, developers will be in-vited to submit bids for prospective sites to the Housing Corporation.
First-time buyers earning less than £60,000 who are interested in taking up the scheme can now get in touch with one of 23 regional housing associations, or HomeBuy agents to get preliminary information.
On choosing one of the properties submitted by developers, buyers re-ceive an equity loan of up to 30% of the purchase price, jointly funded by the government and the developer. The loan is interest-free for the first five years, after which buyers pay 3%.
After 10 years into the loan borrowers are charged at Bank of England base rate, the rate increasing by the Retail Price Index plus 0.5% each year. When owners come to sell, the loan is repaid by sharing the sale proceeds between the government and the developer.
The government is also focusing its resources on staving off the increasing level of repossessions via its mortgage rescue scheme.
Home owners struggling to meet their mortgage repayments approach their local authority who assesses the gravity of their situation and whether they face a real threat of homelessness without intervention. If borrowers are eligible the lender is made aware and IFAs are brought in. The unsecured debt is cleared by registered social landlords (RSLs) which consist of housing associations or bodies registered with the Housing Corporation, then IFAs draw up a debt management plan.
Owners then have three options – shared equity, whereby RSLs provide an equity loan to reduce mortgage payments; shared ownership, whereby RSLs buy a share of the property and issue a shared ownership lease; and a sale-and-rent-back option whereby the secured debt is cleared and the former borrower pays an affordable rent.
The government has pledged support to local regeneration schemes, as well as committing £400m to social housing. Although this funding has been brought forward from 2010/11, McCarthy maintains “there will still be a significant amount of money to spend in the third year”.
The question is how quickly these measures can be implemented, and when the market will feel the benefit.
McCarthy forecasts the programmes will be up and running by January, and says the measures have to be in effect from next April.
He adds that those in need of social housing can approach the Housing Corporation immediately, although he admits there is more work to do on HomeBuy Direct. He anticipates that owners will start to feed through to the rescue scheme by Christmas.
The DCLG is at pains to point out that these measures come in addition to ongoing work to address current market conditions. Previous announcements in May and July saw £510m in funding to reward councils identifying land for development, as well as £200m for the Housing Corporation to buy unsold stock from developers.
But time is of the essence. The CML is predicting 45,000 repossessions during 2008 but the mortgage rescue scheme can only help up to 6,000 struggling owners over a two-year period.
Although billed as a rescue package, these measures will have to be delivered quickly and efficiently to provide any sort of rescue for the ailing housing market.