UK plans divisive home loan revolution to rival Thatcher

THE UK could be on the verge of a housing revolution to rival Margaret Thatcher’s sale of social housing in the 1980s. It may prove just as divisive.

The ruling Conservative Party’s plans, including possible 40-year fixed-rate mortgages, are the latest part of the idea of ​​”property democracy” championed by generations of British politicians.

About two-thirds of households are owner-occupied, with the ratio barely budging over the past decade as prices soared while wage growth and new homes lagged.

The latest push, announced by Boris Johnson in June, for more affordable ways to buy a home will continue despite the unrest gripping the government over the Prime Minister’s departure, according to people familiar with the matter.

Candidates to replace Johnson have so far given an overview of their housing policies: Rishi Sunak has pledged to make it harder to build homes in the greenbelt, while Liz Truss thinks banks should look at payments hire a borrower to decide if they can afford a mortgage.

According to government calculations, more than half of people who rented their homes could afford monthly repayments on a mortgage, but only 6% could easily access a typical first-time buyer loan.

Banks’ high deposit requirements and tight affordability controls, which were tightened after the 2008 financial crisis, stand in the way.

Treasury and Department of Leveling, Housing and Communities officials are exploring savings products to allow tenants to build deposits, as well as insurance programs to cover riskier borrowers.

Thatcher’s ‘right to buy’ which privatized almost two million council houses could be extended to housing association tenants, while loans of up to 50 years could be passed on from parents to children . Further down the agenda are ideas for building more affordable homes.

Embryonic plan

The politics at the heart of the work, and eliciting some of the strongest feelings, is an embryonic plan to move away from the churn-dominated UK market.

Currently, banks are in fierce competition to offer fixed rate loans for only two or five years, which means that borrowers regularly switch products.

Instead, multi-decade fixed-rate loans could become widespread, similar to countries like the United States and the Netherlands.

The Treasury has shown no interest in copying Fannie Mae and Freddie Mac, the US public entities that transfer long-term mortgage interest rate risk from lenders to taxpayers. Insurers could be used to assume some of the risk.

The UK has nearly 3.6 million “resentful tenants”, according to Graham Edwards, co-founder of property group Telereal Trillium and board member of the Center for Policy Studies (CPS) think tank.

If home loan applications focused on whether they could afford monthly repayments instead of the overall value of the property, about two million more could become homeowners, Edwards argued in an article in the 2019 SPC.

UK housing market dynamics are changing rapidly, with increases in mortgage prices likely to continue as the Bank of England raises interest rates and banks use prices to lock in borrowers with five-year contracts.

Edwards is part of a group of housing experts and economists pushing mortgage reform over building new homes, which they say would be too expensive, time-consuming and impossible on a large enough scale. to solve the problem.

Gain traction

The ideas have gained traction with senior Conservative government officials, who may be aware that 57% of people who own their homes voted Conservative in the last general election, according to Global Counsel, a think tank.

After “buying assistance” policies that did little to boost overall home buying rates, and the Covid-19 outbreak that moved other policy work to the back burner , Edwards believes the housing issue is now back in the spotlight, regardless of the situation ahead. change of prime minister.

“Given how central homeownership is to the core values ​​of the Conservatives, the progress made in this area and the commitment of the manifesto, it would be somewhat surprising if this project was not encouraged to continue by a new conservative management team,” Edwards said. said.

Not everyone agrees that the changes would be helpful. The overhaul would mean an easing of lending standards at a time of rising interest rates, inflationary pain and potentially falling house prices, which could burden new homeowners with loans worth more than their house, also called negative equity.

According to Kevin Dowd, professor of finance and economics at Durham University Business School, mortgages with a term of 50 years would be a “political trick” which could drive up demand and therefore prices even more.

“These are not the solution to a sensitive problem. We need more housing,” says Dowd.

Yet simply building more homes would not significantly change who can afford it, according to Ian Mulheirn, executive director and chief economist of the Tony Blair Institute for Global Change.

It wouldn’t solve the fact that “many more families have been trapped in the private rental sector, including three times as many families with children as in the mid-2000s,” Mulheirn said in a recent article. —Bloomberg