The Government is today set to announce new plans aimed at making getting onto the housing ladder easier.
In typical fashion, we all know much of what the Prime Minister will say hours before he actually delivers the speech, since the key portions have been leaked to the national press.
And the most eye-catching element is around the ‘benefits to bricks’ plan.
The idea is that those on low incomes who receive housing benefit will be able to put those payments towards mortgages, with the idea of moving away from the rental sector and into home ownership.
Taking benefits into account
When a mortgage lender assesses an application from a possible borrower, the big question is usually affordability.
They want to have a good idea of whether you can afford the repayments not just today, but in the future should interest rates increase.
And it’s worth noting that when it comes to assessing your income, some lenders already take certain benefits into account, such as Child Benefit, Child Tax Ccredits and Disability Living Allowance.
However, they don’t tend to consider Housing Benefit, which looks set to change under these plans.
Yet the key issue remains.
Lenders don’t want to take on unnecessary risk, and so have to be given a good reason to take a more open-minded view on benefits, particularly if they aren’t going to be viable for very long.
For example, if you have teenage children, that Child Benefit that tops up your earnings isn’t going to keep coming in for long.
There is also an obvious issue over saving a deposit.
You only qualify for Housing Benefit if you have less than £16,000 in savings. Well, that’s unlikely to be enough to serve as a deposit if you want to buy a home.
Looking for answers in all the wrong places
Whenever this Government ‒ and to be fair, its predecessors too ‒ try to intervene in the housing market, it always focuses on the demand side.
From Help to Buy to the mortgage guarantee scheme, to this latest brainwave, the drive is always focused on boosting the position of would-be buyers who cannot afford to buy a property on their own in the current climate.
It’s a laudable aim, obviously. However, if these initiatives are effective, then all that happens is demand is boosted further.
This wouldn’t be an issue if we had sufficient supply of properties for these prospective buyers to choose from. Yet the situation on this front is pretty dire.
Month after month, estate agents report record low stock levels ‒ as soon as a decent property hits the market, there is a bunfight among buyers, which only drives prices up further.
According to figures from the estate agency trade body Propertymark, the typical agent had only 20 properties on their books in April, compared to the long-term average of 42 for this time of year.
Yet they also have 100 interested buyers registered. Given that disparity, is it really any wonder that 39% of sales are agreed at above the asking price?
And of course, that imbalance is also continuing to push prices ever higher, despite all the other economic challenges people currently face.
The latest house price index from Halifax suggests that the average property is now worth almost £290,000, having jumped in value by 10.5% over the last year.
Making things worse
There isn’t a quick fix for tackling our undersupply of property ‒ we simply have to build more homes, and faster.
Yet even here we are failing.
A study by Unlatch this week suggested that the Government is currently missing its new-build targets by 40% a year, which works out at 120,000 homes.
Politicians will always be attracted to fast solutions, things they can do now which will have a somewhat immediate effect on people.
It’s an easier sell than committing to a long-term housebuilding project, which they won’t see the fruits of for a generation.
Yet these quick fixes are anything but ‒ they don’t fix anything, merely creating more problems for buyers down the line.
Just look at those who made use of the Help to Buy scheme, and now find that the equity loan which supported that purchase has rocketed in size precisely because of the way house prices have risen.
There’s nothing wrong with making homeownership easier, but coming up with yet another demand-side scheme is not the answer.