Long-term stimulus needed for property market
Kate Davies is executive director of IMLA
Long-term strategic thinking is needed to ensure that the housing market remains a driving force behind the UK’s economic recovery from the coronavirus crisis.
The government has played an important role in reinvigorating the housing market since its reopening last year.
Long-term stimulus needed for property market
Its policies, including the 95% mortgage guarantee scheme and stamp duty holiday, have helped stimulate demand and boost confidence, ensuring that the housing market has been a driving force behind the UK’s economic recovery from the coronavirus crisis.
Current forecasts suggest that demand is likely to remain high over the coming months and the extension of the government’s stamp duty holiday until September will continue to entice many people to press ahead with their housing ambitions.
This will underpin stability in 2021, but there are still big questions about how the government plans to support the sector over the long-term.
Housing policy over recent months has centred on stimulating demand for homes to prevent the sector from stalling, but much less has been said about government’s long-term vision and how it proposes to combat the key problems facing homeowners and prospective buyers.
There continues to be a chronic undersupply of homes in the UK, and many people find themselves unfairly locked out of accessing a mortgage due to a rigid combination of affordability and stress tests.
Without a clear plan to address these issues, we risk putting homeownership out of the reach for future generations.
We have seen nearly 20 housing ministers since the turn of the century. As a result, consecutive governments have failed to deliver on large scale projects, passing the buck onto those next in line.
Promising proposals – such as those made in recent government White papers – continue to fall by the wayside as a result.
In 2017, the government released its review into fixing our broken housing market, where it promised strategic thinking to unlock the market – but what has actually been achieved?
According to Shelter, the government may not achieve its pledge to build 300,000 homes per annum until 2032, and that’s without taking into consideration the impact of the coronavirus crisis.
A more recent publication – Planning for the Future – outlined government plans to streamline the planning system to boost housing production.
We have seen some action in this area, but this will have limited impact unless we also tackle the challenge facing virtually all buyers these days – affordability.
We are living through one of the longest sustained periods of low interest rate climates ever recorded, making borrowing very affordable.
However, prudential rules require lenders to apply an additional 3% stress test on a large number of products.
When added to the actual rate which borrowers will pay from the outset, which is currently generally less than 5% (APRC), this extra 3% raises the bar to an unrealistic extent, putting loans beyond the reach of many.
This simply does not reflect the reality of the market. We are unfairly excluding people from homeownership which, according to IMLA’s research, could leave an individual £350,000 better off over a 30-year period compared to someone in rented accommodation.
Some are predicting that a change to the current loan-to-income limits could come into effect soon – and that will help to an extent – but an overarching strategy is still needed to join the dots between accessibility to mortgage finance and affordable homes.
In order to do better, we need to create a plan that allows us to take advantage of the unique circumstances that we are currently facing.
The coronavirus crisis has reset so much about our everyday lives and, as the government keeps saying, we now have an opportunity to build back better in the housing sector too.
An effective strategy needs to acknowledge the essential role played by the private rented sector, which has in recent years done much to shore up the deficiencies of the public rented sector, which also needs significant expansion if we are to meet the needs of a growing population, not all of whom will be able to become homeowners.
To deliver this, we need effective and strategically consistent decision-making. One solution could be the creation of an independent housing body.
If the creation of a long-term housing strategy is being derailed by short-term party politics, then let us create a body which sits outside the cycle of elections, cabinet reshuffles and policy “initiatives” which are announced but never followed through.
A procession of ministers has now made promises to deliver thousands of new homes, but then leave it to their successors to make the same promises only a few years later.
An independent body would help join the dots on planning policy to ensure a smooth delivery of homes and create a consistent and positive plan to get a house-building programme firing on all cylinders.
IMLA has called for this repeatedly and there is no better time to make it happen. With this approach, we can build a better future.