The brave new world of affordable housing got even weirder last week with two fresh twists.
We have warned previously that the eligibility criteria for Starter Homes risk directing scarce subsidy towards higher earners. But in a new development, it has been confirmed that cash buyers will be welcomed to the scheme with open arms. While, in our upside-down world of affordable housing, mortgage lenders have warned that people needing a mortgage might find it difficult to secure a loan.
A cash buyer is the very definition of someone who doesn’t need help to buy a home. This is because cash buyers are lucky to have enough money to be able to buy a home outright, without taking out a mortgage at all.
Yet in a long debate on the Housing and Planning Bill in the House of Lords, the government confirmed that it will not bar cash buyers from buying a Starter Home. It offered no real reason for this, only that it didn’t want to ‘disenfranchise’ anyone. (It’s really worth reading the minister’s remarks on this point in the debate, particularly from Column 971)
So we face the possibility that someone will be able to qualify for a government-subsidised 20% discount off a new home that they are able to afford to buy outright with a cash lump sum. And solely on the basis that they are under 40 and don’t currently own a home.
Lest anyone forget, the cash subsidy for Starter Home discounts will cost £2.3 billion, on average worth £38,000 per property. And after five years cash buyers will get to pocket the windfall.
It seems difficult to argue that cash buyers should be a priority for this subsidy. Not when we have 100,000 homeless children and money for new low rent homes is being reduced. And not when there are many more people renting or living at home who have nothing like that much of a deposit.
Which brings us on to people who would need a bigger mortgage to buy a Starter Home.
At almost exactly the same time the Lords discussed the availability of Starter Homes to cash buyers, mortgage lenders warned that people buying with a mortgage might not be able to get one at all. The lenders have issued yet another warning (£) about their fundamental worries about the product. This follows a similar warning (£) they made towards the end of last year, since when – they say – the government has put them under a lot of pressure but hasn’t done anything to practically address their concerns.
Their concern is, in short, that it is almost impossible to properly value a Starter Home. The temporary nature of the discount means that there is a serious risk that buyers will overpay for the homes, due to the expected windfall five years down the road.
The answer, the lenders say, is to make the discount last ‘in perpetuity’. This would mean that when someone sold a Starter Home on, they would also have to sell it a 20% discount and would get rid of the implicit incentive to overpay. It’s currently a principle that’s written into all forms of existing affordable housing and is something that we fully support because it also:
- helps the public purse get value for money and a permanent stock of low cost homes
- gets rid of the risk that wealthier households, like cash buyers, would just sign up to buy a Starter Home in order to profit off the scheme
But this is only one of the improvements that’s needed to address the problems with the Starter Homes policy to make it more effective. We need to make sure that they are genuinely additional and councils need to be given discretion over when to prioritise Starter Homes on new developments.
There can be little doubt that Starter Homes are going to happen – the priority should be making the scheme work. The starting point for that must be making sure that they are prioritised for those who need help; and those who don’t are excluded from accessing it.