The government has announced a series of 130 measures to help the UK’s ailing housing market, focusing in particular on first time buyers.

Since the credit crunch of 2007 the housing market has been in decline with the number of house sales falling and prices dropping considerably from the peak of the housing boom.

Many experts believe that problems have been made worse by a lack of new homes, with the number of houses being built at the lowest level since the 2nd World War, a general lack of mortgage finance with tightening lending criteria, and a rise in the size of deposit needed to secure a mortgage. First time buyers now have to put an average of 20% down as deposit, double the amount needed before the credit crunch.

New housing initiatives

The new measures will include:

  • A scheme to help people get mortgages of up to 95% of the value of a new home, which will be partly underwritten by the government
  • £400 million fund to help unblock stalled housing projects
  • Larger discounts for social housing tenants who want the ‘right to buy’
  • Planning decisions on stalled projects to be reviewed
  • A fund of up to £150 million to help make empty housing available
  • More public sector land to be released for sale
  • Consultation on “pay to stay” meaning that households on higher incomes will have to pay market rents if they are to continue to live in social housing

First time buyers

The centre piece of the package of measures was a scheme to help beleaguered first time buyers.

Linda Wood, Mortgage Adviser, Nottingham

Linda Wood, Mortgage Adviser Nottingham

Are you a first time buyer in need help with your mortgage? Contact Linda today on 0115 933 8433 or email linda.wood@investmentsense.co.uk

The government will launch an indemnity scheme which will allow banks and building societies to lend up to 95% of the purchase price for first time buyers. The loans will effectively be underwritten by the government although the scheme will partly be funded by house builders, who will have to pay around 3% into a fund to help meet any liabilities if buyers default.

The scheme should be good news for many first time buyers for whom new build properties have traditionally been popular.

The announcement bought accusations that scheme will see a return to irresponsible lending and that the government are encouraging people to buy homes they cannot afford. But with rents rising many first time buyers will argue that they can afford the monthly mortgage payments, but what they cannot afford is to save a deposit at the same time as paying rent; this scheme is designed to help such people.

Announcing the measure David Cameron said: “When first-time buyers on a good salary cannot get a reasonable mortgage, the whole market grinds to a halt.”

The prime minister continued: “And that ricochets around the economy, affecting builders, retailers, plumbers – all the people that depend on a housing market that is moving.”

“If we don’t do something like this we are not going to get this vital market moving… We will restart the housing market and get Britain building again.”
Stalled housing schemes

New homes built by private and social sectorsThe graph (right) shows just how much new housing development has fallen as the credit crunch has taken hold. The government believe as many as 130,000 new build housing schemes, all with planning permission, have stalled due to a lack of funding measures have therefore been announced aimed at tackling this problem.

The “Get Britain Building Fund” will see £400 million made available to developers to help kick start stalled housing projects. To qualify for the scheme developers will need to meet the government’s criteria, which includes a commitment to affordable housing.

The government believes that this initiative alone will lead to an extra 16,000 homes being built and create 32,000 jobs in the building industry.

Right to buy

Over recent years the popularity of the ‘right to buy’ scheme, introduced in the 1980’s, has fallen as discounts have been reduced.

Council house sales after 1980The government have announced that to help people on to the housing ladder, tenants of social housing will get the right to buy their own home, with a discount of up to 50%.

Money raised from the right to buy scheme will be used to build more affordable housing and ministers believe that for every council house sold off a new one will be built.

Reaction

The wide ranging package of measures has been met with a predictably mixed reaction.

Reacting to the indemnity scheme to help first time buyers Stuart Baseley, executive chairman of the House Builders Federation said: “In recent years, many people have been unable to realise their dreams of buying a home because of the huge deposits required by lenders.”

He continued: “This scheme will be allow people to buy their new home on realistic terms and help, in particular, hard-pressed first time buyers.”
Labour however were dismissive of the measures, with leader Ed Milliband saying: “These measures are too little, too late from the man who was responsible for choking off growth in the British economy when he came to power.”

“Putting back just 10% of the £4bn he cut from housing investment last year will convince no-one he (David Cameron) is serious about getting growth back into the economy.”