News of a resurgent housing market is, for obvious reasons, very well-received by those fortunate enough to already own their own homes. But for those struggling to take their first step on the property ladder, or who need to upsize to accommodate a growing family, housing charity Shelter believes the situation is becoming increasingly desperate, particularly for low to middle income families.
In a report published last week, Shelter examines the impact rising house prices and flat earnings are having on peoples’ ability to move onto and up the housing ladder. It argues the solution lies in dramatically boosting the supply of shared ownership housing.
The report focuses on low to middle income families with a household income of between £20,000 and £40,000. It estimates there are aound 1.8 million familes that fall into this category, who could find themselves trapped in the rental market or on the first step of the property ladder when they have a need to upsize.
Shelter’s analysis of incomes and house prices suggests increasing property values could leave almost three-quarters of this group priced out of owning a family home.
As a result, it believe many families are forced to bring up children in private lets, facing the insecure prospect of short-term tenancy contracts of six or twelve months.
The charity says government schemes aimed at boosting the housing market have done little to help these so-called “forgotten families”, and argues repayments on a shared ownership home would be affordable for 95 per cent of these households.
In March, Business Secretary Vince Cable put forward an idea he termed as a “no-brainer”: spend 1 per cent of GDP on building new homes in Britain. Shelter goes further, saying the equivalent £12bn should be devoted to shared ownership housing.
The charity believes that investment could build 600,000 shared ownership homes over the next four years.
The Government has tried several schemes so far to boost the housing market, with varying degrees of success. FirstBuy, launched in March 2011, was a shared equity scheme which offers first-time buyers a Government loan towards buying a home. It was followed by NewBuy, which allowed prospective borrowers with a 5 per cent deposit to buy a new home, alongside a Government guarantee of up to 15 per cent. Both schemes have now been rolled into Help to Buy.
Help to Buy is appliable to new homes worth up to £600,000, where buyers put down a 5 per cent deposit and the Government provides an equity loan of up to 20 per cent which is interest-free for five years. The second phase of the scheme, a £130bn mortgage indemnity scheme, is set to be rolled out in January 2014. The Government will guarantees up to 15 per cent of the purchase price, with the borrower putting down a deposit of between 5 and15 per cent.
So far the schemes have focused on shared equity, where the borrower owns the whole property and funds this through a conventional mortgage and an equity loan. They have not considered shared ownership, where the borrowers own a share of the property and pay rent on the remaining share.
Shelter director of campaigns and policy Kay Boycott says: “Years of piecemeal policies and an alphabet soup of confusing schemes have stymied shared ownership and left it nowhere close to meeting families’ needs but for many young people desperate to find a stable home, a national shared ownership programme is the bold and radical solution we need.”
It seems, however, that not everybody believes shared ownership is the silver bullet to resolve the issues faced by families struggling to get on the property ladder.
House Building Federation director of economic affairs John Stewart says: “We see no problem at all with shared ownership taking its place in the greater housing mix but alternative options must be explored and invested in too. When discussing public funds, there must be questions asked at every stage and I am not sure the level of investment Shelter wants in shared ownership alone is the logical solution.”
Trinity Financial product and communications manager Aaron Strutt disagrees with Shelter that government schemes have done little to help people own their home. He is also unconvinced that shared ownership is right for everyone.
He says: “There are a fair number of shared equity schemes in the market but they are still not affordable for many borrowers. The government is letting more people buy their council houses and there are not enough properties available. The real problem is people are not earning enough to qualify for a mortgage so I think the problem is more complex than simply offering more shared ownership schemes.”
But Legal & General director of housing and external affairs Stephen Smith is more supportive. He says: “This report demonstrates the need for much more intermediate tenure provision across the UK but also that the plethora of schemes we have had to date have served to confuse rather than give confidence to lenders and buyers.
“A single scheme, which is clearly described and clearly understood by buyers and lenders alike would be a great step forward. Fundamentally, for low and middle income earners, shared ownership has a big role to play in getting families into decent homes.”