David Cameron has finally decided to do something about Britain’s troubled housing market, but it’s not sitting pretty with analysts and investors alike. His radical new strategy (his words, not mine) includes: letting first-time buyers access mortgage funds after only putting up 5% in down payments; further pushes for the Right To Buy scheme targeted at social housing, and injecting a (deceivingly) sizable £400 million to resuscitate the country’s moribund construction sector. Also, in a bid to highlight how incredibly serious Mr. Cameron’s government is about resolving the current housing crisis, he even announced to insure lenders against any defaulting mortgages initiated under the said plan. No explanations, however, as to why none of this gloom was apparent last year while carrying out those brutal spending cuts, of which developmental housing bore the deepest gashes.
In the aftermath of the global financial fallout, U.K. banks have been reluctant to service the housing market, shutting out both owners and developers from obtaining necessary financing. The resulting inactivity is said to be holding the greater economy from recovery, and keeping Brits from realising their dreams of homeownership. The government’s offer to team up with builders and indemnify lenders against any losses is expected to ease up credit flows, coaxing banks to provide mortgages at 95% LTV a proposition they’ve largely shied away from ever since the world economy went bust (presently lenders insist on offering mortgages at a somewhat restrictive LTV ratio of 75%-90%).
The demand for housing in Britain is expected to grow at a rate of 232,000 homes/year, of which only 100,000 are being built at present. The £400 million in planned funding is intended to get developers to start working on new projects, and complete those that remain unfinished. Lack of building has cost the British economy dearly (accounting for nearly 20% of last years economic drag), and the government foresees the creation of many long-lasting employment prospects once construction efforts recommence.
Cameron’s other two propositions related to social housing are extensions of already in place, largely ineffective policies. Those currently residing in subsidised social housing would be given first-preference, and offered the opportunity to buy their present dwellings at 50% off market value. Bought homes, which no longer form a part of public housing, would then be replaced with newly built units to keep the welfare property stock at balance. The fact remains that the public will be made to spend much larger amounts to replace these sold-off units, a theory that seems at odds with the governments current austerity drive. If further cuts are instituted down the line, and construction of new welfare units becomes unsustainable, then what shall become of that segment of the population that desperately depends on social housing for survival?
The plan has largely failed to excite the markets; developers are hopeful, but their dipping share prices say otherwise. Critics want the government to do more to strengthen fundamentals, and create actual demand to help lift the property market out of the red. The Tories, however, have begun to accept one reality, the buy-to-let phenomenon is here to stay, at least for the time being; and if homeownership can’t be guaranteed, affordable renting options should.