Queen's Speech: Industry sceptical of Right to Buy extension

The Queen has announced that "legislation will be introduced to support home ownership and give housing association tenants the chance to own their own home".

Related topics:  Finance News
Rozi Jones
27th May 2015
Houses house of parliament commons government govt gov

Right to Buy will be extended to 1.3 million housing association tenants, giving them the chance to benefit from the same discounts offered to council tenants.

However Stephen Johnson, Managing Director of Commercial Mortgages, Shawbrook Bank, asked how government pledges such as the extension of Right to Buy to tenants in Housing Associations will affect the rental sector.

He said:
 
“We welcome any moves that will help to ease the restricted housing supply this country faces, and the government’s pledges on house building are a step in the right direction. However, these numbers alone will not fill the gap and the private rental sector remains the driving force behind the UK’s property market. This makes it more important than ever to have rental housing that is fit for purpose.
 
“Among our own clients we are seeing moves to meet the growing needs of the private rental sector, often through refurbishment, expanding existing properties, or converting properties into houses of multiple occupancy.
 
“We see the move to extend the Right to Buy scheme as part of a wider decline in the supply of social housing available to tenants. By encouraging tenants of Housing Associations to buy their homes, the government is increasing the reliance of remaining social tenants on availability within the private rental sector. Demand for the private rental sector is therefore the catalyst for the growth of the housing market moving forward.

Stephen Smith, Director, Legal & General Mortgage Club and Housing, went further, claiming that "the extension of the right-to-buy policy to housing association tenants will reduce the number of affordable homes available in the UK when we need a greater supply of suitable housing, not less. Forcing the sale of homes at a lower than market value will ultimately disrupt a well functioning sector and make it harder for housing associations to allocate resources and more difficult for investors to lend to them."

David Whittaker, managing director of Mortgages for Business, agreed that "one real danger from today’s announcements could be an eagle-eyed focus homeownership at the expense of other tenures".

Whittaker said that the government must ensure that any pledge to replace housing association properties sold off through Right to Buy actually happens – and shouldn’t overlook the role of the burgeoning private rented sector.

He said:

“Equally, new homes are the solution to most of the UK’s property problems, but planning isn’t the only building bottleneck. Finance matters too – and has been in scarce supply for the best part of a decade. Specialist lenders with the know-how and the imagination to support property development schemes are making excellent returns and supporting vital new homes.  But they are the tiniest minority compared to the main bulk of the mortgage machine lending against the understandable safety of existing property.

“Confidence is the biggest factor holding back a tide of potential – and the government can’t magic up optimism overnight.  Even established developers need to feel particularly entrepreneurial to take on a decent-sized development project – and their financial backers will need at least as much convincing. The new government should be preparing for a long slog on the housing front. One Housing Bill won’t be enough.”

Richard Sexton, director of e.surv chartered surveyors agreed, adding that "it’s welcome to see the government acting quickly on their pre-election promises but minor tweaks to the system cannot possibly mop up all the buyers who want to get on the housing ladder today."

Sexton continued:
 
“Earmarking land to make it easier and quicker to self-build is a positive nod towards increased housebuilding, although the process remains far from simple. Planning regulations are still far too restrictive and the number of skilled workers who can physically put a house together is another anchor on new housing volumes.
 
“The extension of Right to Buy to housing association tenants does help make an unfair system more balanced. However, there will be a time lag between selling off stock, and building new properties. In the meantime, the waiting list of tenants needing housing could get substantially longer. That will have a knock-on effect on the private rented sector and the purchase market.”

Andy Frankish, New Build Director at Mortgage Advice Bureau, instead argued that a bolder step would have been the "commitment to ensuring that high loan-to-value lending to first time buyers is maintained" through the extension of Help to Buy.

Frankish added:

“The pledge to take forward Right to Build, which will see the government ensuring that local authorities support custom and self-builders, is far more encouraging for those who want to see structural problems with housing supply addressed. MAB has long suggested that custom build can provide the solution to a lack of housing stock in Britain, as it mutually benefits builders, lenders and consumers alike and will stimulate development. It is good to see that policymakers are listening to the voice of industry, and we look forward to the scheme’s implementation.”

But Stephen Johnson said that over the next year, he still expects the property sector to return to the upwards trend of the last few years.

He concluded:

"It remains to be seen exactly how manifesto pledges such as increased house building and Right to Buy will play out and the impact they will have on the market. We anticipate that the private rental sector will fall under continued government scrutiny, but at the moment the signs are once again positive for the UK’s property market.”

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