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A situation which passes all understanding

A few years ago I found myself at a parliamentary breakfast at which I defined a key worker as the son or daughter of a politician – a quip that the Westminster gravy train around the table found hard to digest.

However, I was subsequently disabused of that definition by a senior civil servant from the Department for Communities and Local Government. Key workers, he lectured, were defined by the fact that their salaries were negotiated at a national level and therefore it was pragmatic to offer them housing on the cheap, rather than to agree a national salary structure based on the ability to afford housing in, for example, London and the south east.

I mention this as prelude to an observation that as a result of the credit crisis it would seem that ‘low-paid’ key workers now seem to have a better chance of getting on the homeownership ladder than an equally hard working individual who wasn’t a nurse, or a policeman, or a teacher, and earned just a bit more than the eligibility parameters set for shared equity schemes offered by housing associations.

Another anomaly is the way the state subsidises not only social housing but also the rental sector as a whole at the expense of homeowners. It’s hard to believe, but the state helps homeowners with mortgage repayment difficulties through ‘income support mortgage interest’ (ISMI) to the tune of £355m a year while the cost of housing benefit is around £15.2bn.

The rental sector represents about one in three households so the government’s goal of increasing homeownership is at odds with its disproportionate support of a minority tenure. Indeed, that £15.2bn has probably been driving the buy-to-let market and has been throwing up some interesting situations.

Just consider this case involving housing benefit. A local authority in Surrey is helping an unemployed couple with five children to rent a five bedroom detached property complete with its own jacuzzi for £2,700 a month. Apparently anything less won’t meet their housing needs.

Such a property would sell for around £750,000, so let’s reverse the proposition. Assume that it is being bought by a high earning couple who suddenly find themselves out of work with a £500,000 mortgage. After nine months they become eligible for ISMI but only on the first £100,000 of the debt. If interest is being charged at 6.5%, the state would pay them about £542 a month – over £2,000 a month less than the family on housing benefit.

But that’s not all – the homebuyer’s total interest bill on £500,000 would be £32,500 per annum – just £100 more than the £32,400 paid in housing benefit to the family with five children. But because the home buyers would be defaulting on their mortgage to the tune of £26,000 per annum they would be forced to sell up and try and find a more humble home elsewhere with the remainder of their capital. Where’s the rational in that?

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