UK Edition
Britain has a new Government. And near the top of its to-do list – after getting Brexit done – is solving the housing crisis.
A new report from the Centre for Policy Studies shows the hideous scale of the problem. It finds that there are 3.6 million people under 65 who would have been homeowners before 2008, but now are not: the “Resentful Renters”.
But it also finds that there is a rather unexpected culprit.
Two years ago, Graham Edwards, a brilliant entrepreneur who has built Telereal Trillium into one of Britain’s largest private property firms, started working with the CPS on a new analysis of the housing market. His findings explain why the Conservative party committed to a bold new housing policy in its recent manifesto – and why it might just spur a home ownership revolution.
What Edwards shows is that the ownership crisis cannot be explained primarily by house prices. Resentful Renters can be found across the UK, whatever the state of the local market.
Instead, he focuses on the toughening of mortgage rules that followed the financial crisis. Today, to get a mortgage, you need to be able to afford not just the actual monthly repayment, but the rate the mortgage would ultimately default to – plus an extra 3 per cent as a “stress test”.
What this means is that even though the average monthly payment is £633, you can only borrow if you can afford to pay £1,075.
At the same time, the average deposit paid by first-time buyers has tripled, from 5 per cent to 15 per cent. Remarkably, Edwards shows that despite house price rises, deposits would still be as affordable for today’s first-time buyers as in 2009 as a share of income if we had stuck with 90 per cent mortgages. .
The result is that millions of people have been locked out of home ownership. Instead, properties have been snapped up by buy-to-let investors. Between 2005 and 2015, first-time buyers received 2.2 million fewer mortgages – and landlords ended up owning 2.1 million more homes. It’s not hard to do the maths.
The problem is so bad that the number of properties acquired by landlords during that decade exceeded the number of new homes built. In other words, if we’d banned landlord purchases, and built no houses at all, we’d have ended up with higher home ownership. And a quarter of those who are getting on the housing ladder are only doing so because they have access to the Bank of Mum and Dad.
This isn’t a recipe for a fair society – or a happy one. It’s one of the reasons young voters turned to Corbyn: because they saw themselves condemned to worse lives than their parents. Home ownership is at the heart of aspiration. And that so many people are being denied it is not just a scandal, but a tragedy.
So what’s the solution?
As Edwards argues, the mortgage regulations were put there for a reason: to guard against future financial shocks. But what if you could cut out the stress – and the stress test – altogether? Interest rates are at historic lows. Borrowing has never been cheaper.
So Edwards’s prescription is to lock those ultra-low rates in permanently, by offering long-term, fixed-rate mortgages where you know what you’ll be paying for the next 25 years.
This would eliminate the stress test, because there would never be a jump in mortgage costs.
It could slash deposit requirements, because of the certainty involved. And Edwards’s modelling shows that it could enable 1.9 million extra households – with solid prospects and good employment records – to get on the property ladder.
Of course, as he acknowledges, you would still have to build more houses – and persuade buy-to-let landlords to sell up. The last thing any of us want is more credit chasing the same number of properties, driving prices up. His suggestion is a capital-gains tax holiday for landlords who sell, with priority being given to the sitting tenant.
The really exciting thing about this scheme, however, is the opportunity it offers. These kinds of long-term investments are exactly what pension funds and others are crying out for – which is why Edwards’ report has been warmly welcomed by Aviva Investors. The scheme wouldn’t even need Government underwriting, just its benevolent oversight.
The Conservative party committed in its manifesto to encouraging precisely this kind of market.
If we get it right, we can give millions more people the gift of home ownership – and of a secure future.
Robert Colvile is Director of the Centre for Policy Studies. ‘Resentful Renters’ by Graham Edwards is published today
It’s not property prices messing up the British housing market, it’s mortgages