Housing in Wales rises up the political agenda
Published: 17 May 2017 | Author: John Marr and Carla Sateriale
More than 130 mortgage industry professionals and their guests gathered in Cardiff for the CML Cymru annual lunch, hosted this year in the middle of a general election campaign in which housing had already become one of the key issues.
As CML Cymru chair Julie-Ann Haines and director general Paul Smee addressed guests at the lunch, we published this article drawing on our data to explore how the housing market in Wales differs from the rest of the UK. The article also provides a lending industry perspective on current Welsh housing policy – and how it might evolve as a result of the election campaign and what happens thereafter.
Housing market conditions
The pressure driving up house prices in Wales is less pronounced than in the rest of the UK. In Wales, average prices have therefore yet to return to their pre-recession peak, even though they have now moved above this mark for the UK as a whole. In the first quarter this year, the average price of a Welsh property was £159,100, which meant, according to Markit, that prices were just 0.8% higher than in the same quarter a year ago, and still 5% below their level in 2007.
Despite growth in house prices and rents in recent years, the market in Wales has been a little more accessible to first-time buyers than in the UK as a whole. Typical first-time buyers in Wales in 2016 had an average age of 29 and managed to borrow at a loan-to-value (LTV) ratio of 87%, while spending 17% of their income on capital and interest payments. In the UK as a whole, meanwhile, a typical first-time buyer, aged 30, took out an 84% LTV mortgage, and spent nearly 18% of their income on repayments.
Last year, first-time buyer purchases accounted for half of all mortgaged transactions in Wales.
Home movers in Wales also enjoyed better affordability prospects. A typical mover there took out a 75% LTV loan, borrowing 2.92 times their salary. That was up from a multiple of 2.84 times income in 2006. But, across the UK, a mover needed to borrow 3.25 times income (up from a multiple of 2.96 in 2006) for a 72% LTV mortgage.
Growth in rents has also been more gradual in Wales than in rest of the UK. While UK rents have gone up by about 14% since 2011, Wales has only seen a 4% increase, according to the index of private housing rental prices published by the Office for National Statistics (ONS).
As in the rest of the UK, demand for rental accommodation is increasing. The Department for Communities and Local Government estimated that privately rented housing made up 15% of the housing stock in 2015, nearly double its share a decade earlier. At the same time, the share of dwellings owned by local authorities dropped from 12% to 6%, and the proportion of homes in the owner-occupied sector declined from 75% to 69%.
Despite this, however, the owner-occupied market is more prevalent in Wales than in the rest of the UK, where only about 65% of homes were owner-occupied in 2015.
Over the past decade, mortgaged house purchases in Wales have followed almost exactly the same course as in the rest of the UK. From a peak of 12,400 sales in the fourth quarter of 2006, volumes slumped to nearly a quarter of that figure at the beginning of 2009. For the last two years, transactions have hovered at around 7,000 transactions per quarter. However, Welsh property prices – and mortgage values – have not seen as much momentum as the wider UK market.
More subdued market conditions in Wales are explained by both demand- and supply-side factors, including:
- Slower population growth. The ONS estimates that the UK population grew by 9% between 2004 and 2015, compared with 5% growth in Wales over the same period. This may be partially attributable to substantial net outward migration from Wales in recent years among people aged from 20 to 29.
- A smaller deficit in the supply of homes. As in the rest of the UK, housing completions in Wales have lagged the net increase in households in recent times. However, a moderate decrease in the pace of household formation in Wales has helped abate the problem.
Figure 1: Housing completions and net change in number of households, Wales and the UK
There are a number of current policy developments affecting residential and buy-to-let mortgage markets, commercial lending and investment in housing associations in Wales.
Help to Buy – and stamp duty
The Help to Buy Wales equity loan scheme will continue until the end of 2021, and we are encouraging the Welsh government to think now about future support it may offer to customers with lower deposits. We are keen to see as much consistency as possible with the existing arrangements in England and urge that any withdrawal of the scheme in Wales should be implemented smoothly, with no cliff-edge effects to disrupt the market.
As part of the devolution of fiscal powers, stamp duty will come under Welsh control from April 2018, meaning that Wales will introduce its first tax for 800 years – the new land transaction tax.
We welcome the intention that this should broadly replicate stamp duty in England, although ministers will not set local rates and bands until October this year. We recognise the need to ensure Wales maintains tax revenue but would like to see rates and bands operate in a way that supports transactions at all levels of the property market.
The government is preparing to implement the Renting Homes (Wales) Act 2016, which will introduce a new standard model contract, expected in 2018, to replace the assured shorthold tenancy in the private rented sector.
We are contributing to the implementation stakeholder group, and working to ensure lenders retain a clear legal route to possession under the new Act. We also want to ensure that the government understands that lenders need time to make changes to documentation and systems before the new tenancy arrangements come into effect.
Welsh ministers, keen to safeguard social housing for the future, have introduced a Bill to abolish the Right to Buy. This year’s Welsh government budget, agreed in January, also includes £1.4 billion to meet the government’s ambitious target of 20,000 new affordable homes over the rest of the Assembly term to 2021.
To meet this target, housing associations in Wales will need to continue to attract private finance on attractive terms. Being able to do so will depend on robust and effective regulation of the sector by ministers, which will help sustain lender confidence.
So, as the Welsh government responds to the recent re-classification of Welsh housing associations by the ONS, lenders will want to see the right balance between removing controls and retaining effective regulatory powers. Lenders want the government to go only as far as is needed to address ONS issues, and to adopt measures similar to those introduced in England.
In our evidence to the recent inquiry by the Assembly’s public accounts committee, we stressed that any weakening of the regulator’s powers, particularly measures to intervene when an association is failing, is likely to undermine lender confidence significantly.
Rent to Own and shared ownership
We have contributed to a government steering group to develop a new Rent to Own scheme. This will include an option to buy the property on a shared ownership basis, if someone has a deposit and can afford a mortgage to buy a share of the property.
The aim is that at least 1,000 homes will be provided through the scheme during the current Assembly term, up to 2021. Shared ownership will be based on the established Homes and Communities Agency model lease in England. Lenders are already familiar with this, and that will help ensure consistency between the two countries.
Innovation and modern methods of construction
The Welsh government has recently begun work on an innovative housing construction programme, with £20 million funding. The plan is to work through the housing association sector to provide affordable and social rented homes. We sit on the steering group overseeing development of the scheme, and will address lender concerns on build quality, the lifespan and maintenance of properties, and warranties.
The Welsh Assembly and government are striking out in their own direction on housing policy, with a strong focus on affordable and social housing delivered by registered social landlords. Finance is provided through grants and attractively priced private funding and investment.
Housing policy in Wales will evolve in the aftermath of the UK general election but social housing assets are being protected by plans to abolish the Right to Buy, and support for low-deposit home-buyers through the Help to Buy scheme is successful and popular. Tax devolution is being introduced, and the new land transaction tax next year will provide a measure of fiscal control of the housing market.