The government has announced its “rescue package” of measures to support the ailing housing market. £1 billion is to be spent, mostly by bringing forward money that was due to be spent over the next two years. Features of the package fall into two categories - those aimed at getting the housing market and the government’s house building programme moving, and those aimed at helping homeowners experiencing difficulties in making mortgage repayments.
The measures aimed at stimulating the housing market target housing providers (principally local authorities and RSLs) and first time buyers. The initiatives are:
- The announcement of a new HomeBuy Direct shared equity scheme, under which first time buyers with a combined income of less than £60,000 will be able to apply for a loan, interest free for five years, to provide a deposit of up to 30% on a new build property. The scheme is to be jointly funded by the government and housing developers. At the time of going to press, it is not clear quite how the developer contribution will be provided, but it may take the form of a 15% “discount” on a property’s asking price, with the government providing the other 15% to make 30%. £400 million being brought forward ahead of schedule for housing associations and councils, with the aim of enabling them to deliver 5,500 more social houses over the next 18 months.
- Bringing forward £400 million for providers of social housing, enabling the delivery of 5,500 new social homes over the next 18 months.
- A Stamp Duty Land Tax “holiday” with the threshold for the tax being raised from £125,000 to £175,000 for one year.
As well as helping individuals to either access the housing market or to avoid repossession, the government’s actions reinforce its commitment to delivering its ambitious housing targets and regeneration projects, with the £400 million that has been brought forward being used to kick start the stalling programme. Importantly, the announcement will allow local authorities with existing housing stock to apply for the first time for grant to build social housing alongside registered social landlords. The government’s rationale for extending this responsibility to local authorities appears to be threefold – firstly to achieve its housing target, secondly to promote its commitment to local housing companies and thirdly safeguarding capacity within the house building sector.
In order to achieve this ambitious target, it is likely that house builders, landowners (including local authorities and health bodies) and social housing providers will need to work collaboratively and creatively to remove a number of blockages caused by the credit crunch, not least the lack of mortgages, the costs of development finance and existing mixed schemes stalling.
A solution may involve landowners working with RSLs (for example through a joint venture vehicle) on mixed scheme developments. Importantly, the joint venture would receive land from the landowners on a deferred consideration basis.
The joint venture could then develop, for example, the “for sale units” to be let initially on a rent to buy basis. The units could be managed by an RSL. As the market improves, the joint venture could sell houses to private purchasers and the monies received used to pay the rent to buy landowners an agreed amount for the land that it transferred to the joint venture at the outset. The remaining houses could then be transferred by the joint venture to the RSL to be kept for social housing, and the monies payable by the RSL for these houses would be used to repay the joint venture’s loan from the RSL.
The parts of the government package aimed at helping homeowners in difficulty are:
- Householders at risk of having their homes repossessed being able to sell part or their entire home to a housing association at market rate, thus reducing or clearing mortgage repayments.
- Reform of the Income Support for Mortgage Interest (ISMI) scheme under which people who are either unemployed or on a low income receive assistance in paying the interest on their mortgages, by shortening the period before ISMI is paid from 39 weeks to 13 weeks. This change will be introduced in April 2009.
In addition, the government is being pressed in some quarters to allow local authorities to offer mortgages to people at risk of having their home repossessed.
Some local authorities regard this option as more costeffective than having to re-house people once their home has been repossessed. A similar option could be for local authorities to offer indemnities to help homeowners with expensive sub-prime mortgages move to more affordable conventional mortgages.