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Will new HomeBuy work?

Published 01 May 2023

The political impact of a pledge to create a million more homeowners is big. But the small print reveals Labour’s proposals are actually rather modest. Julian Birch reports

Labour’s proposals to give more tenants the chance to own their own home still look modest when you read the small print. However, there can be no doubting the political impact of its pledge to create a million more homeowners by 2010 and give them a stake in the ‘asset-owning democracy’.

Launched the week before the start of the official election campaign by deputy prime minister John Prescott and chancellor Gordon Brown, the plans went a long way to neutralising the threat of the Conservatives’ pledge to extend the right to buy to housing association tenants. The longer-term financial impact is harder to assess.

According to the Office of the Deputy Prime Minister (ODPM), HomeBuy will help key workers, social tenants and other first time buyers to buy a share of a home.

New build HomeBuy and open market HomeBuy would take elements of existing low cost home ownership schemes to offer simpler, fairer assistance to those who want to buy a share of a new home built with public subsidy, or a share of a home that is for sale on the open market.

Social HomeBuy would ‘introduce new opportunities for social tenants who cannot afford or do not have the right to buy, to buy a share of their existing home with a discount on their share’ – and would protect the supply of social homes by enabling landlords to reinvest sales proceeds.

According to the consultation paper, the open market and new build HomeBuy schemes, will help at least 30,000 key public sector workers to buy a home by 2010. A further 26,000 people will be helped to buy a home on the open market or a home newly built with public subsidy, giving priority for assistance to social tenants. This in turn will free up a social rented home for another household.

A previously-announced initiative will help an additional 15,000 first time buyers to buy through new build HomeBuy. Half of these will be key workers.

In addition, the ODPM is in talks with the British Bankers' Association about introducing private finance into equity loans for the new build and open market options. It says this could help an additional 20,000 people to buy, taking the total helped to 100,000 by 2010.

The consultation ends on June 24 and the scheme is due to be introduced in April 2016.

Immediate reaction to the plan was generally positive but sources identified four main areas for debate:

  • Will investment be diverted from the rented programme? It is understood that the Housing Corporation will have to spend £30 million a year of its development budget on the scheme. The consultation paper envisages the Corporation running a competition in which housing associations bid for the costs of offering social HomeBuy discounts, as part of the approved development programme bidding round.

    ‘We would be very concerned if money was diverted from much-needed social housing into deposits,’ said Merron Simpson, head of policy at the Chartered Institute of Housing (CIH). ‘This should not be at the expense of people in acute housing need.’

  • What impact will it have on housing association finances? The various HomeBuy options will effectively replace shared ownership schemes that are vital to the finances of many associations.

    According to the National Housing Federation, the current system adds about £450 million a year over and above grant funding. This equals 6,000 new homes and the repair and improvement of 4,000 homes.

    The consultation paper goes some way to addressing this point with a proposal for a 3 per cent charge on the remaining share.

    But Helen Williams, head of neighbourhood and sustainability at the NHF, said: ‘we support the principles behind social HomeBuy but in terms of it being taken forward there are some key tests. It needs to be affordable to tenants and make sense financially to housing associations. Associations will look at the impact on their investment plans for new homes and the repair and improvement of existing properties.’

  • How will private finance for equity shares work in practice? The consultation paper envisages the same eligibility criteria as for open market HomeBuy. But buyers would get half of their equity loan from a mortgage lender and the rest from the government.

    Buyers would either pay an annual charge on their loan or a premium on top of the mortgage.

    However, there are still practical problems to be solved, as Peter Williams, deputy director-general of the Council of Mortgage Lenders, explains. ‘It’s now a question of working out whether there is an economic proposition for lenders in this,’ he says. ‘The problem with equity loans is that you don’t know how much you’re going to get back and when. That makes it a difficult product to price and the upshot so far is that the market has shied away from it.

    ‘This is a big challenge for the lending industry. This is the most explicit signal since 1997 that the government has given on home ownership. Now it’s up to government and lenders to show what might be done in partnership.’

  • What happens to tenants who still can’t afford any of the HomeBuy options? The CIH and Shelter are drawing up plans for a HomeSave scheme to give tenants a stake in their home without buying it. This will be launched in the summer.

Tags: tenants, mortgage, government, finance, development, lenders, landlords, neighbourhood, equity<>