ROOF Blog archive

THE NUMBER OF PEOPLE taking out a mortgage worth more than the value of their home has soared by 70% in a year, according to mortgage brokers quoted in today’s Daily Mail. The ‘100% or more mortgages’ allow them to get on to a property ladder that is still moving out of reach but leave them highly exposed to negative equity if the market cools.

IT MAY ONLY BE 20 HOUSES but the impact of a new housing scheme called Carran Crescent is likely to be felt across Northern Ireland.

Opened yesterday by Northern Ireland secretary Peter Hain, the development in Enniskillen, Co Fermanagh is the province’s first mixed housing scheme, where Catholic and Protestant families have signed a charter of good neighbourliness to live side by side. It comes eight years after the Good Friday agreement, under which Britain promised to provide homes for people who wanted to live alongside each other free from fear of intimidation.

The project is a partnership between Ulidia Housing Association and the Housing Executive and is the first to be completed according to the principles of the Shared Future policy adopted by the government in 2005. About 95% of public housing in the province is segregated.

Go here and here for more details.

GET READY to leave the country. Apparently, the government is planning a council tax revaluation. Shockingly, valuers will find out how much a home is really worth and tax it accordingly.

According to the Mail on Sunday yesterday:

‘Ministers have purchased sophisticated ‘Big Brother’ computer systems which calculate the desirability of an area based on the quality of local services and the types of people who live there. The software, which will be used in the forthcoming revaluation of all 21 million homes in England, contains astonishingly detailed data on the number of households, even those who have pets, wear contact lenses or are vegetarian. It allows inspectors to put a precise value on each home, based not only by its size and features, but its location.’

The Conservatives have been making hay with the story but Labour has dismissed it as ’juvenile’.

After the paper’s revelation last week that council tax officials will have a right of entry to people’s home, it’s enough to make your average Mail-reading veggie (are there any?) want to leave the country. Which is exactly what some are planning to do according to the comments on the software story.

PLANS TO BREAK UP Glasgow Housing Association received a severe set-back today after a leaked consultants’ report said second-stage transfer would cost more than £500 million.

The report from Deloittes and DTZ is understood to be due to go before the GHA board tomorrow with the message that ‘second-stage transfer cannot be achieved within the existing financial envelope’. Go here and here for more details.

A RARE international perspective on the housing boom comes in today’s Financial Times. An analysis starts with the problems in the market in the United States, where prices are falling in many areas and sales of new homes have slumped, and then looks at the situation around the world. It quotes Alan Greenspan, former head of the US Federal Reserve, as saying low interest rates were not responsible for the boom:

‘I don’t think the boom came from a 1 per cent Fed funds rate or from the Fed’s easing. It came from the collapse of the Berlin Wall.’ The end of communism had ‘brought billions of cheap labourers on to the scene. This was highly disinflationary. Bond yields fell, real interest rates fell and real asset prices, like house prices, rose dramatically.’

The (very tentative) conclusion? Despite the soft landings seen so far in Britain and Australia, there are no guarantees that the US will not see a much sharper correction. Especially as, unlike here, construction of new homes boomed as well as prices.

TODAY’s PAPERS have some interesting takes on the report from the Conservatives’ Tax Reform Commission.

According to The Telegraph the plan to scrap inheritance tax on primary residences would ‘pour petrol on the flames of the British love affair with bricks and mortar’. It says the plan would create a perverse incentive to trade up in the property market in old age because people would cash in assets like shares that would still be subject to capital gains tax. Go here and scroll down.

Meanwhile, the Independent’s Andrew Grice writes that the Tories and Labour have indentified the baby boomer vote as a crucial factor in the next election. Go here.

‘The Tories believe the group can be won over because they are worried that the prosperity they enjoy will not be passed on to their children, who may struggle to get on the housing ladder and enjoy less generous pensions. But Labour regards them as natural supporters because many have progressive values and favour spending on public services rather than tax cuts.’

Grice quotes a speech by shadow education secretary David Willetts at the Conservative conference:

‘We baby boomers haven’t just bought our houses cheap and written off the borrowings with high inflation. We’ve then pulled up the ladder behind us by restricting the supply of housing as well, further pushing up prices.’

NEW GOVERNMENT RESEARCH has confirmed private renting’s status as the tenure of the noughties.

Housing in England 2004/05 shows a rise of 20% in the number of households renting privately between 2000 and 2005 – from 2 million to 2.4 million. The number of households buying with a mortgage fell by 2.3% to 8.3 million over the same period and the decline of social housing continued with a 7% fall to 3.7 million.

The commentary accompanying the full report sees three main reasons for the rise in private renting:

‘(a) the continuing rise in property prices has forced younger people to remain longer in the private rented sector; (b) increasing numbers of people are looking to buy an additional property for their pension portfolio; and (c) the advent of the Buy-To-Let mortgage has made it easier to finance these types of purchase. In truth, private investors were buying property to let long before the advent of the Buy-To-Let mortgage, but its creation has probably encouraged more aspiring landlords to go down this route.’

The effect of this was most marked on younger people. Between 1993 and 2005 the proportion of households aged 25 to 29 fell from 60% to 50% while the proportion renting privately rose from 19% to 34%.

To download the full report go here.

WHAT IMPACT would the tax cuts proposed by the Conservatives’ Tax Reform Commission have on housing?

George Osborne and David Cameron were careful to stress that they wouldn’t necessarily accept all the recommendations. It seems a reasonable assumption that tax cuts aimed at low earners financed by new green taxes will be high up the agenda but it is the taxes on capital in chapter 8 of the report that could have the most impact on housing.

The commission wants to scrap inheritance tax and reform capital gains tax at a cost of £2.6 billion a year. It argues:

‘Inheritance tax should be abolished. It should be replaced by the reformed capital gains tax which would become chargeable on death, as is the case in Canada. This would ensure that all comparatively short-term gains would be chargeable but that assets held over the long-term (and primary residences) could pass heirs without taxation. This would take primary residences out of all capital taxation, with the exception of stamp duty on property.’

Capital gains tax would then become:

‘A tax on short-term capital gains only: no capital gains tax should be imposed on a gain arising on disposal of an asset which has been held for over ten years. For shorter periods of ownership the gain would be tapered so that 90 per cent of the gain is taxed after one year’s ownership, 80 per cent after two years and so on.’

The proposal on scrapping inheritance tax will be welcomed by home owners looking to pass on the value of their home to their children and by mortgage lenders who have pointed out the effect of the government’s failure to uprate the threshhold in line with house prices. Buy-to-let investors will also be pleased by the prospect of being able to pay less capital gains tax.

The losers will almost certainly be young first-time buyers. Half of those under 30 already rely on help from their families to buy. What will happen to those who don’t have the tax-free proceeds from the sale of family homes to help them out?

The report does not mention reform of stamp duty on residential property or the council tax.

AN INVESTIGATION by Radio 5 yesterday stirred up fresh controversy about the targetting of government housing subsidies for key workers and the meaning of ‘affordable’.

Five Live Report said subsidised homes meant for key workers were going to bankers and accountants – and even someone working at Harrods. The investigation centred on one 112-home block at the Chelsea Bridge Wharf development in Battersea, London, and found 40 per cent of the homes had been sold to people who were not key workers.

Not the best Sunday morning listening for anyone at the Housing Corporation. However, the programme appears to have got confused.

According to the Corpie, 27 of the 112 homes were funded under the starter home initiative and 23 got other Corporation funding. These had a household income limit of £49,000 – just about ok for two teachers sharing a two-bed flat. Another 20 were for key workers with no grant but with a £60,000 income limit. The remaining 42 were sold under a 90 per cent share on the open market as part of the original section 106 deal between the developer and Wandsworth council.

Confused? Radio 5 seems to have been, as can be seen from the way it downgraded from its original publicity for the programme that key worker homes were being ‘mis-sold’ to a report later in the day that they are ‘under scrutiny’. This may have undermined its point about the key worker programme in particular but did it have a point about ‘affordable’ homes in general. Make up your own mind when it gets round to posting a ‘listen again’ link for the programme here.

Key workers probably will be confused too – by the number of different schemes involved in one block in one development and by what ‘affordable’ really means.

Homes at Chelsea Bridge Wharf are currently on sale at £545,000-£565,000.

TENANTS IN Stirling have voted 2-1 against stock transfer, leaving both the council and the Scottish Executive with a major headache.

The 68% vote against the deal follows a narrow rejection of transfer in Edinburgh. The next test of the policy will come in Renfrew, which is currently balloting, followed by Highland and Inverclyde next month. Glasgow, Borders, Dumfries & Galloway and Comhairle nan Eilean Siar [the Western Isles for English readers] have voted ‘yes’.

The Stirling deal would have seen £24.5 million of housing debt written off and extra investment in the 5,600-home stock but ‘no’ campaigners attacked it as privatisation. Council deputy leader John Hendry said:

‘It is clear that the consequences of this result are serious both for tenants and the wider community. Stirling Council will now need to explore how it can fund improvements and regeneration in the future, within the resources available to the Council. We are all disappointed, but the Council will work hard to ensure that we continue to deliver the best possible housing service with the resources we have.’

For more see The Herald’s story here.

The case for and against transfer is being made up and down the country. In the latest vote in England, at the end of September, tenants of four estates in Tower Hamlets voted ‘no’. In Wales, meanwhile, a Cardiff University academic has accused local authorities of saddling tenants with poor quality homes through ‘a combination of inertia and ideology’ over transfer.

HOW LONG before the government works out that the housing boom might be caused by demand as well as supply? The officlal solution is to build more homes in the long term and subsidise first-time buyers in the short term.

In the meantime overpaid City bankers and traders have fat Christmas bonuses to spend. Where do they invest it? Pensions? Shares? Or the under-taxed housing market? You guessed it. Gazumping is on the way back. Helpful lenders are even offering special mortgages to let them pile in before they trouser the cash.

The lobbying campaign for reform of stamp duty is gathering pace ahead of the pre-Budget report in November.

The Council of Mortgage Lenders (CML) published figures today showing that the proportion of first-time buyers paying stamp duty has risen from 48% to 56% in the last year. The CML did not say what action it wanted the government to take.

The Halifax was much more explicit in a survey last week listing 79 towns where the average house price is over £250,000, where stamp duty rises to 3%, making the average bill at least £7,500.

Halifax chief economist Martin Ellis said:

‘We call on the government to increase the higher stamp duty thresholds in line with the increase in house prices since 1997. We believe the government should commit to index link all the stamp duty thresholds to house price inflation in the future.’

Like its similar campaign on inheritance tax, the lobbying relies on persuading the chancellor to change a system that has brought him billions of pounds of extra tax revenue since 1997.

What you won’t be hearing of course is a comparison between the taxation of housing – up to 4% each time you move, the same rules on inheritance as anything else, plus the council tax – and any other form of investment.

The CML survey also reveals that first-time buyers now account for just 35% of loans for home purchase and that interest payments now take up 17.1% of their income. Is the solution to that really to lower stamp duty for everyone (including buy to let investors) and reinforce a situation where only those with help from their families can afford to buy?

A NORFOLK local authority is considering following the lead of the Yorkshire Dales and banning the building of new second homes. More than 40 per cent of homes in some towns and villages in King’s Lynn and West Norfolk and the council says local shops and schools are being undermined.

The modest move is about as much as local authorities can do to control second home ownership until the government responds to the report of its Affordable Rural Housing Commission.

The west Norfolk ban ban would apply in areas of outstanding natural beauty and in villages where more than one in four of the homes is already a second home. Local estate agents – surely not! – have attacked the plan, arguing that it will not stop second homes, just inflate the price of homes without restrictions even more.

The Affordable Rural Housing Commission called in May for funding for 11,000 affordable new homes a year in rural areas plus consideration of a range of options to control second homes. These included a local impact tax and a new planning use class order that would mean anyone converting a home to a second home would need planning permission.

The government says the proposals are being fed into the comprehensive spending review and planning policy statements on housing and that it is planning a website on improving access to affordable homes.

THOSE NICE Nu Tories couldn’t possibly do anything nasty if they get power, right? That nice Mr Cameron even mentioned housing in his conference speech.

Wrong, says Polly Toynbee this morning. Public spending cuts are inevitable.

‘What might the Tories do to shrink the state? At first expect no headline cuts in services used by the middle classes – the schools and hospitals. Nor in police, prisons or army. Don’t expect charges back for museums and art galleries. Instead, listen out for everything Cameron and his front bench sneer at.’

Toynbee is of course not coming to this entirely free of political baggage. But be prepared to feel depressed as she reels off a list of programmes including decent homes and supporting people that she thinks will see cuts.

‘What else might be threatened? Any barely reported project that doesn’t touch the great majority. Expect few cuts to alarm the 70% of homeowners, the fit, the employed and all who live where schools are good and streets clean and safe: those programmes below the political radar of the comfortable would be first to go.’

HOMELESS households have not lost out under choice-based lettings, according to new research for the DCLG.

An idea first borrowed from the Dutch five years ago and now adopted by a quarter of English local authorities, the system aims to open up housing allocations by letting applicants view details of homes and choose which ones to apply for. Go here to find out more.

There had been fears that would mean homeless families being shunted in to low demand areas – and there have been legal challenges to individual schemes. But the research says the opposite has happened: their chances of being housed in high-demand areas have actually risen.

Meanwhile, the average number of bids for each advertised property has been rising fastest in less popular areas, suggesting bidders are applying where they think they more chance of success.

There are some buts though. Paternalism is dead, long live paternalism?

‘Whilst bidding rules and procedures appear fairly well understood by applicants, many report having little understanding of applicant ranking rules. In part, this probably reflects the fact that in their CBL publicity material many landlords focus on the former somewhat to the exclusion of the latter.’

WHY ARE house price rises always seen as good news? It’s hardly surprising given the fact they underpin the earnings of mortgage lenders, estate agents and journalists but it’s worth asking the question again after a week that’s seen both the Nationwide and the Halifax report a fresh surge in prices.

Prices rose 1 per cent in September alone, said the Halifax today.

‘Sound fundamentals, underpinned by a stronger economy and record high levels of employment, will continue to support a healthy housing market over the coming months.’

Healthy? Prices rising at four times the rate of inflation? That’s like saying a ten-year-old stuffing himself with burgers and chips and turkey twizzlers has a ‘healthy’ appetite.

AT THE SAME TIME as the government was relaunching its flagship scheme to help key workers on to the housing ladder (see yesterday), a leading specialist lender was releasing research that shows a major reason why they need it.

Paragon Mortgages told the Daily Mail that booming house prices had created thousands of buy-to-let millionaires. The average professional investor apparently now has a portfolio of 12 properties worth £1.5 billion.

The government still argues that lack of supply is responsible for the house price boom. It has increased output of new homes from 140,000 to 170,000 and plans 200,000 by 2016.

Yet with buy to let rising by 20 per cent in the first six months of this year, how many nurses and teachers are being priced out by speculators?

A FORTUNATE 10,000 extra key workers will be helped on to the housing ladder under a deal announced today between the government and four mortgage lenders. The deal effectively doubles the Housing Corporation’s spending power under open market homebuy by offering public-private equity loans.

Housing minister Yvette Cooper told journalists at the launch of the scheme that a £150,000 mortgage for a key worker under the scheme would typically cost £700 month – as opposed to £950 in the open market. This is because the government and mortgage lenders will share a 25 per cent equity stake in the home, sharing in any rise (or fall) in the value. Go here for more information.#

The government remains convinvced that the long-term solution to housing affordability is to increase supply. In the meantime, those left behind by the housing boom will be wondering what will take off quicker: equity loans or house prices? See the next issue of ROOF for full analysis.