CML sets out views on starter homes initiative
Published: 5 March 2015 | Author: Bernard Clarke
Lenders will play a key role in helping to deliver the proposed new starter homes initiative, more details of which were announced earlier this week. We support the goals of the scheme, and believe it has potential to increase the amount of lower cost housing available to first-time buyers.
As a representative body, we are ready to contribute to the important task of helping establish detailed rules for the scheme to ensure that it works effectively. The contribution that we – and the lending industry more widely – can make in this role would build on our support for measures like Help to Buy and NewBuy, which are already helping tens of thousands of people into home-ownership annually.
Aside from government schemes, lenders are, of course, already helping hundreds of thousands of first-time buyers every year. In 2014, they advanced more than 310,000 first-time buyer loans, the highest total for seven years.
We believe that the way in which the starter homes initiative is implemented needs careful consideration, if it is to work in the way intended and deliver its full potential.
- Homes built through the initiative will need to be of a type and in locations that are desirable to first-time buyers and which provide good security for lenders. It will be important to avoid an over-supply of similar types of starter homes – newly-built flats, for example.
- The scheme needs to be part of a wider, comprehensive home-building strategy.
- The composition of sites on which homes will be provided is important, with a good mix of types of housing and tenure. This will help avoid lenders feeling over-exposed to a particular type of property in a particular location.
- Valuation of property will need to be fair, transparent and undertaken consistently, especially in relation to comparable properties. This will be important in sustaining lender confidence in the scheme.
- How the initiative works in conjunction with other forms of help for first-time buyers will be important. Although it might be possible for the starter homes initiative to work alongside other schemes providing assistance, this will need careful consideration. In particular, lenders believe it is essential that borrowers to pay a large enough deposit for a starter home to ensure they are committed to sustaining their mortgage payments and making the transaction a success.
- Arrangements for selling on the property in future will also be crucial. We believe that, in the unlikely event of a forced sale, lenders should be able, after a reasonable period, to sell a property on the open market without the restrictions of the resale covenant.
- On the other hand, it will be important to ensure that rules for selling the property do not attract first-time buyers seeking investment opportunities, which would undermine the integrity of the scheme. So, there may be a need for a long tapering period, for example, over which the discounted price reverts to open market value.
- Restrictions on access to the scheme will also need to be considered carefully. Although the government has announced an upper age limit of 40, we can see no justification for that. Our data shows that many first-time buyers are older than that, and imposing unnecessary restrictions would limit access to the scheme and make it more difficult to sell the property in future.
How the scheme works
Under the starter homes initiative, it is proposed that builders be exempt from 'section 106' affordable housing contributions. The government says that these can cost up to £15,000 per home. It believes that freeing builders from these costs will enable them to develop ‘brownfield’ land that is under-used or unviable.
In return for this exemption, builders will be expected to make homes available to first-time buyers at a "minimum 20%" discount. Outside London, it is proposed that the maximum cost of a qualifying home will be set at £250,000, but inside the capital the figure would rise to £450,000.
The government has set up a design panel to scrutinize plans for homes built under the scheme. It wants to make sure that homes are attractive and are:
- fit in with existing local housing styles; and
- have good parking and community spaces.
The government says that properties bought under the scheme will have to remain available to first-time buyers at a minimum discount of 20% for the first five years, meaning that any buyer looking to re-sell during this period will have to offer a similar discount to a subsequent first-time purchaser.
To keep first-time buyers informed about the scheme, the government has launched a website, on which potential purchasers can now register their interest. Within days, it reported that 31,000 people had signed up.
The government also says that some builders and councils are already planning to bring forward land for the construction of homes, and can now begin submitting proposals. A number of builders have said they will support the scheme, and construction of the first homes is expected to start within months, the government says.