CML news & views

Publication of manifestos by the three main political parties confirmed our expectations that housing, home-ownership, financial regulation, and the funding and taxation of property will be major issues in the election campaign – and for the newly-formed government.

Predictably, some manifesto pronouncements by all three main parties were simply a re-statement of existing commitments. And on many key policy proposals, there was very little detail. That was hardly surprising, given that specific legislative and regulatory proposals by government are almost always accompanied by detailed and prolonged consultation, often lasting months or even years. So, while the manifestos are helpful in foreshadowing future policy initiatives, the devil – as ever – will be in the detail. 

Whatever the outcome of the election, our purpose will remain unchanged: to represent mortgage lenders and promote sustainable housing finance in the UK. We will therefore work with the newly elected government (whichever colour, or combination of colours, it turns out to be) – and with individual political parties – in pursuit of those clear objectives. You can find out more about our activities, and about the party manifestos, on our general election pages.

The key Labour manifesto proposals

Labour’s proposals include consultation on measures to strengthen the building society sector. The party wants to encourage a “mutual solution” to the sale of the nationalised Northern Rock – while ensuring that it generates maximum value for taxpayers. And it wants to promote greater competition in the banking sector more generally by breaking up those banks in which the government currently has a stake.

Pledging to widen home-ownership, the manifesto commits to maintaining HomeBuy Direct, but also contains proposals for social tenants to be able to rent an affordable home “at below market rates while they build up an equity stake.” Labour’s other commitments include:

• building up to 10,000 council houses a year by the end of the next Parliament;
• introducing, for all private tenants, tenancy agreements, as well as access to free and impartial advice and a new national landlord register;
• ensuring there are consistent standards of protection from possession;
• the introduction of generic, easily understood labelling of financial products, and a “crackdown” on unfair contract terms; and
• a repetition of the Budget commitment to have the Financial Services Authority (FSA) regulate all mortgages, including second-charge loans.

The CML's view

We support – and, since the onset of the credit crunch, have argued consistently for – measures that will restore and continue to sustain a diverse mortgage market. We want a market in which firms of all sizes and type – banks, building societies and specialist lenders – can participate and thrive, delivering the benefits of competition and choice for consumers. Clearly, that would encompass the Labour Party’s general proposals for building society and banking competition.

We also support HomeBuy, but continue to favour simplifying the existing scheme rather than creating new options for consumers. Lenders prefer shared equity to shared ownership, and are more likely to engage with a simplified and narrower range of HomeBuy options, which is easier and less expensive for firms to administer.

Lenders also support protection for private tenants. Before Parliament was dissolved, we worked with the last government to try to deliver better protection for unauthorised tenants, without prejudicing the interests of firms or borrowers. 

However, we would need to see more detail on measures to improve protection for private tenants, which, we believe, would need to be subjected to rigorous cost-benefit analysis. We would be concerned if new requirements for landlords served to deter them from entering the sector. That would be unhelpful at a time of shrinking home-ownership and when funding for social housing is squeezed by pressure on government spending.

We continue to support regulation by the FSA of all secured lending, including second charges, a position we have held for a number of years. More recently, we have been working closely with the regulator as it conducts its comprehensive mortgage market review. But with the outcome of that review still uncertain, we would be cautious about the launch of any fresh regulatory initiatives affecting the relationship between firms and consumers. As always, we would be concerned about any regulatory gaps, overlap or potential conflict, and would urge detailed cost-benefit analysis of any proposals.

The Conservative manifesto

The Conservatives pledge to “create a property-owning democracy where everyone has the chance to own their own home.” In support of this, the party generally favours reducing tax on property, with a permanent increase in the stamp duty threshold for first-time buyers to £250,000, and an exemption from inheritance tax for legacies of up to £1 million. For many people, their home is the largest part of their estate. 

To promote access to home-ownership, the party wants to make it easier for social tenants to own – or part-own – their own property, and to introduce a new “foot on the ladder” programme, offering an equity stake to “good” social tenants that they can cash in when they move out of their social rented accommodation.

Other key Conservative manifesto commitments include:

• abolishing the tripartite regulatory system, with a new Consumer Protection Agency taking over the FSA’s responsibilities, and the Bank of England overseeing prudential regulation;
• reform of banking regulation to ensure lower levels of leverage and “less dependence on unstable wholesale funding”;
• a review of competition in the banking sector to inform a strategy for selling off the government’s stake in banks;
• abolishing home information packs (HIPs) – but keeping energy performance certificates; and
• launching a free national financial advice service, funded by a new “social responsibility levy” on the financial services sector.

The CML’s view

Both the Conservatives and Labour are proposing a £250,000 stamp duty threshold for first-time buyers, although Labour’s plan is for this to revert to £125,000 after a two-year ‘holiday’. But while raising the threshold will help some borrowers, and is therefore welcome, the reality is that exemption from stamp duty will have only a modest impact on the overall initial cost of becoming a home-owner for most first-time buyers. The biggest hurdle for most of them is the 25% deposit they are typically required to pay. 

We welcome the Conservatives’ proposal to raise the tax threshold for first-time buyers permanently. But no party is advocating the more comprehensive reform of stamp duty that we favour, which would remove the iniquity of paying duty at the highest marginal rate on the whole of the price paid for a property.

It was, of course, the paralysis of wholesale funding markets that triggered the credit crunch. So we understand the Conservatives’ concern about over-dependence on unstable funding markets. But the glaring omission from all the party manifestos is how to address the key question of a £300 billion funding gap created by the closure of wholesale funding markets. This will be one of the biggest challenges for the new government.

Although the FSA has already made good progress on its comprehensive mortgage market review, it will take many years to complete and implement. We are therefore concerned about proposals to switch the FSA’s responsibilities to a new agency, which has not yet even been set up. 

We recognise the need for the FSA’s review, and support it. Nonetheless, it creates uncertainty for consumers and firms. In our view, it would be unhelpful to add to this uncertainty – or to prolong the review process or add to its cost unnecessarily. But that would be the likely outcome of any plans to scrap the FSA.

The Liberal Democrat manifesto

Like Labour, the Liberal Democrats want to promote choice for consumers between different types of lending institutions. The party wants regulators to be responsible for maintaining a diversity of providers in the financial services industry, and to give responsibility for mutuals to a specific minister. It also wants to convert the nationalised Northern Rock into a building society.

Meanwhile, the Liberal Democrats – like the Conservatives – want to scrap HIPs but retain energy performance certificates. Their manifesto also proposes:

• an annual 1% ‘mansion’ tax on homes worth more than £2 million, paid on the value of the property above that level;
• “make sure that repossession is always the last resort by changing the powers of the courts”;
• scale back HomeBuy schemes and provide affordable homes in rural areas through “equity mortgages” and by encouraging farmers to convert existing buildings;
• apply the same rate of VAT both to newly-built homes and repairs to existing property, without affecting the overall amount of revenue;
• investigate the potential for councils to borrow against their assets to build more housing; and
• end the “gold plating” of EU rules, so that UK businesses are not at a disadvantage to their European competitors.

The CML’s view

We favour a narrower range of HomeBuy schemes, based on shared equity. In principle, therefore, we support the Liberal Democrats on this issue but – as with so many proposals in all the manifestos – the details will be crucial. But proposals to introduce “equity loans” on affordable homes in rural areas suggest that the party may have plans to introduce another low-cost home-ownership initiative, which could – on the limited evidence available – offset some of the benefits of having a scaled-back range of HomeBuy options.

Liberal Democrat proposals for reform of court powers on possession are potentially a major cause of concern. Lenders already use possession only as a last resort, as required by existing law and regulation. They also support the pre-action protocol – upheld by the courts – to ensure this principle is followed in individual cases. 

It is, of course, a fundamental principle of mortgage finance that a lender is able to take possession in the last resort if the borrower is unable to repay the loan. We would urge great care in any reform affecting this principle, as it could unintentionally lead to restricted availability of – and more expensive – mortgages, particularly for riskier customers, including first-time buyers.

Lenders favour a mixed tenure, and have provided funding for the private and social rented sectors for many years. We therefore cautiously welcome plans that could allow councils to borrow against their assets to build more housing. The key to unlocking private funding for this is to devise a scheme that provides adequate security and enables lenders to engage with it.

We support the Liberal Democrats’ commitment to end the gold plating of EU rules. In particular, we remain opposed to European regulatory initiatives that conflict with UK requirements. We would welcome the party’s support for our call for a stay on any proposals for European regulatory reform until this process has been completed in the UK.

Conclusion

Each of the manifestos of the major political parties contains significant proposals affecting housing, home-ownership and mortgage lending. It is disappointing, however, that the biggest single issue affecting the aspirations of home-owners – the long-term shortage of mortgage funding – has not been addressed in any of the manifestos. 

As ever, the manifestos contain only the most basic details of policy proposals and once again therefore a key concern will be ‘the devil in the detail’. Whatever the outcome of the election, however, we remain committed to representing lenders and promoting sustainable housing finance in the UK. We therefore stand ready to work with the new government – and with all political parties – in support of those aims.