"It’s that problem of initial access, i.e. saving for the deposit, the supply of high LTV loans, and securing the mortgage."
Coming just a week before the Autumn Statement, the Redfern Review is no doubt intended to heap the pressure on the Government even more to stem the decline and, in particular, to provide more support for potential first-time buyers in order to help them onto the housing ladder.
Reading the report – and this is not meant as a criticism because these points are always worth reiterating – it’s clear that there is a consensus about what could be done to halt the drop in home ownership, and in particular to help the younger generation into their own homes. There are some interesting points made however I’m not convinced that the powers that be aren’t already aware of these, have been so for some time, but the issue comes with turning paper solutions into reality.
For instance, would anyone really argue against the belief that we need a long-term focus on building more homes, one that isn’t in thrall to political parties or electoral change, one that has cross-party support, is in some way independent and whose job should not change just because our Government does?
However, the fact this report was commissioned by the Labour Party means that those of a Conservative persuasion might suggest, "They would say that because they’re currently out of power" and, let’s be honest, Governments have all used housing as a political football for many decades. It might be beneficial to all to have an Independent Housing Commission deciding on this but are Governments – of any colour – really going to cede control of such an important issue, and potential vote winner. It’s doubtful.
So, getting a political consensus might be the right approach but it may not be achievable. The report also calls for more support for first-time buyers and, while there will be a demographic that agrees with this, there might also be one that believes first-timers (in recent years) have had more State-sponsored support than you could shake a stick at. The numerous Help to Buy iterations, including Schemes 1 and 2, plus new initiatives around deposit-raising with the Help to Buy ISA, and other schemes such as shared ownership, etc, are all fully focused on the first-timer. Is there room (or appetite) for any more?
The report recommends that Help to Buy 1 is ‘slowly tapered’ down so that it is only accessible to first-time buyers and there are arguments to be made in favour of this. However, what we also need to address is those homeowners who might wish to move on – so freeing up their homes for first-timers – but are simply not in a position to do so, either through lack of supply or access to mortgage finance. Should we take away the second-steppers access to Help to Buy 1? I’m not so sure.
It is a positive that the issue of mortgage finance is confronted in the report. As it rightly points out, in the wake of the Credit Crunch, the fall in the availability of high LTV mortgages directly contributed to a fall in home ownership. It, again rightly, acknowledges that first-timers are much more likely to need high LTV mortgages and therefore they would have been impacted severely by this. It even puts a number on the drop in home ownership because of this, suggesting this alone took 3.8% off the home ownership rate from 2002 to the end of 2014. And since then, even with the relative success of Help to Buy in developing greater numbers of high LTV products, one would have to suggest that the continued difficulty in securing such loans continues to have a major negative impact on home ownership levels.
As we’ve repeatedly pointed out over the years, for most first-time buyers the problem is twofold: a) the lack of housing supply, but b) the cost of accessing home-ownership. By cost we’re not talking about the ongoing monthly mortgage cost because, on the whole, the vast majority can afford their mortgages once they get them. It’s that problem of initial access, i.e. saving for the deposit, the supply of high LTV loans, and securing the mortgage. It’s the reason why 5/10% deposit mortgages are so important, especially when you do not have access to the Bank of Mum and Dad, and are also paying off other debts whilst also paying rent and other living expenses. Without them the savings required would be pretty impossible to achieve, given house values/prices.
So, as we see the end of Help to Buy 2, the importance of a continued supply of high LTV mortgages cannot be underestimated. Supply of new homes is crucial but without the necessary finance to buy them, first-timers have no chance. Lenders who have taken part in the HTB2 appear to still have appetite to lend in this part of the market in 2017 and beyond, and the utilisation of private mortgage insurance to help them do this, should be a key part of the continued supply of such loans.
