Three risks to first-time buyers of new Help to Buy scheme

Want to understand what’s really going on in Britain, and how we can fix it? Join Vicky Spratt’s subscriber-only newsletter, The State We’re In, where she breaks down the big issues shaping the country. You can sign up to get it sent straight to your inbox, every single week, here. Welcome to this week’s The State We’re In from Liverpool where I am in the thick of it (sorry). I want to talk you through Labour’s flagship announcement for first-time buyers but, first, let me set the scene. This year, Labour’s annual conference in Liverpool is, as I wrote in my column yesterday, a noticeably more positive affair – and not just because the branding for Burnham’s premiership is “Hope Again”. The mood is lighter, and, aside from a few disgruntled Starmerites, there is, genuinely, more unity in the Parliamentary Labour Party. Something else is different, too. Burnham’s Cabinet ministers are noticeably more serious and united, this is somewhat ironic given the fact that this was what Starmer’s government tried to project. The vibe has, indeed, shifted. Shorts Right, let’s talk about “Your First Home” and what I’ve gleaned so far about how the policy will work. Announced on Saturday night to kick off proceedings here in Liverpool, setting the tone of Burnham’s first conference as Prime Minister and offering a carrot to younger generations, this is intended to provide an injection of state cash for young people without wealthy parents. The policy, crucially, is also a carrot for Britain’s struggling housebuilding industry which, as I wrote last week, is in the doldrums. What is ‘Your First Home’? This is a cautious refresh of the Tories’ Help to Buy equity loan scheme but, as I have been told by those in the know, with “strict guardrails”. First-time buyers on what Burnham has described as “regular incomes”, with 2.5 per cent deposits but without access to the Bank of Mum and Dad, will be able to apply for a Government-backed, interest-free equity loan worth 20 per cent of the purchase price of a new-build home. This is a key point: YFH will only be available for new-builds. Help to Buy was initially available on all homes and that’s the bit of the Tories’ scheme which appears to have caused a bit of house price inflation. The buyer will then have a 77.5 per cent mortgage with a regular lender. But, once you factor in the government loan, they are effectively borrowing 97.5 per cent of their home’s value which is a huge amount of debt to be taking on. That said, the Government say that because the equity loan part will initially be interest-free, eligible first-time buyers “could save hundreds of pounds per month” compared with a standard 95 per cent mortgage. It’s also worth noting that Help to Buy loans went up to 40 per cent in London, so YFH is much more modest. So, who is eligible for YFH? This is where we need more information. I cannot yet get any information on how Burnham and his housing team, a) plan to define a “regular income” and b) plan to work out who does and doesn’t have the Bank of Mum and Dad behind them. For instance, will a nurse earning less than £30,000 a year who inherited £10,000 when her mum died be eligible or not? A clue on the sort of people we might expect this scheme to target may lie in existing shared ownership eligibility requirements. The household income limit for shared ownership is £90,000 a year in London and £80,000 outside. So, I think it’s fair to assume that YFH will be in a similar ballpark. With the average salary of a first-time buyer in the UK being around £36,000, according to Mortgage Advice Bureau, this would mean some couples looking to get a foot on the housing ladder would be ineligible for the scheme. Capping the deposit required at 2.5 per cent is supposed to give young people who are struggling to save the whopping amounts of cash now required to move a leg up. What are the potential pitfalls of YFH? Again, we need more detail. But, like Help to Buy, making the equity loan interest-free at first is appealing but, as I know from personal experience, when the interest does kick in, your costs suddenly soar. My Help to Buy loan currently costs me more than £350 a month. If house prices continue to stagnate, as they have in recent years, there is also a risk that people who use this scheme will have taken on large debts only to see their home remain at the same value or, worse, because there is a premium on new-builds, dip in value. This could potentially land them quickly in negative equity, where the value of your borrowing is bigger than the value of your property, leaving them stuck with their current lender or unable to sell their home. What are the upsides of YFH, then? Well, it will help people into homeownership just as Help to Buy did. There’s no doubt about that. And, stricter eligibility requirements should stop speculators becoming involved. This isn’t just about young people, though. It’s also about our economy. As I wrote last week, Britain’s economic watchdog is considering downgrading the growth score they’d attached to Labour’s housebuilding plans because builders are struggling to get new homes out of the door. This isn’t just a problem for housebuilders, but for economic health overall. YFH is explicitly intended to be a shot in the arm for the development industry and has already seen share price rises among major developers including Persimmon and Taylor Wimpey. It doesn’t come without conditions, builders will be expected to pay to be involved. Again, we don’t yet have the details on that. As ever, the devil will be in the detail. But, when you consider it in the round, Labour have taken decisive action to do something about the housing market which was stalling and, potentially, about to tip into the red zone. Have you had problems with Help to Buy? I’d love to chat. Email me at vicky.spratt@theipaper.com Housing crisis watch There are more major announcements coming from Angela Rayner’s housing department. Firstly, she is giving councils stronger powers to take over empty and derelict homes and meet council housing need by using them to house people who are stuck in temporary accommodation because they’ve become homeless. Labour say that the changes could make it simpler for councils to bring some of the more than 300,000 empty dwellings into use to provide essential housing for families in need. It will all be achieved via empty dwelling management orders (Edmos), which allow councils to take over the management of long-term empty homes and bring them back into occupation for an initial period of 12 months, up to a total of eight years. In the English Devolution White Paper, the Government committed to strengthen local authority powers to take over management of empty properties. This is something Andy Burnham pumped funding and resources into when he was the mayor of Greater Manchester. I interviewed him about it here last year. Worth re-reading. It doesn’t stop there. In her speech today, Rayner also announced beefed up powers for local councils to tackle homelessness which will be added to the Social Housing Bill. They include: A new requirement to notify – reducing much-needed social homes from leaving the sector by requiring housing associations and other providers to notify the council when they are selling a social home, while also doubling the time for this before a home is sold to maximise opportunities for councils, or other social housing providers, to buy the property. A new duty to collaborate – compelling public services to work together to prevent homelessness and support those who are at crisis point, mandating early identification of those at risk of or experiencing homelessness, ensuring they are referred into the right support. Learning from Scotland and Wales, where such a duty is already in place, the Government says this will ensure people get the right support they need and support the new national effort to end rough sleeping. A new power of referral – a power for local authorities to refer a homeless household to housing associations and other providers to be housed unless the private provider has a good reason not to do so. This measure will help tackle the number of families in temporary accommodation, which is at a record high – almost 180,000 children are currently living in temporary accommodation. Last but not least, not only did the Housing Secretary confirm that managing agents of leasehold buildings will be regulated, she made it clear that the hard-won cap on ground rents at £250 until they are eventually scrapped entirely IS happening. Rayner also revealed she will regulate freeholders’ ability to charge leaseholders administrative and “permission” fees for things such as the right to have a pet in their home and making minor cosmetic changes like putting in a new front door. This might sound technical but it will join up the dots in a system which, frankly, is fragmented and chaotic. What I’ve been reading and watching Honestly, mostly the booklet you get given at the Labour conference which tells you what is happening when.