A Look at First Home Buyers Policy - UK
In the UK home buyers have experienced many of the same challenges as New Zealand, albeit for a longer period of time.
Property prices in London are very high compared to most other parts of the UK, however many larger cities also have severe affordability issues.
This has created social issues particularly in low income areas, where housing now accounts for a massive part of the household budget.
Councils in the UK and various housing associations have offered what is essentially social or community housing at below market rates for some time. While this has been a good safety net for some, some of these complexes have been associated with social problems such as high drug use, crime and poverty related health issues. The stigma associated with council flats or housing is also quite profound, with some resulting in the actual outcome of social housing not always being as intended by councils or governments.
These issues and well documented benefits associated with safe and secure housing and homeownership has seen councils and the government in the UK implement an increasing number of policy initiatives and housing schemes designed to increase the affordability of housing, particularly for first home buyers and those renting council or housing association properties. The UK has also weighed its policies towards the creation of new housing to alleviate the supply shortage which has ultimately helped drive the lack of affordability in many areas, particularly larger cities.
Below is a summary of some of the more widely available schemes designed to increase affordability and home ownership rates and the housing supply in the UK.
Equity loans or help to buy schemes – available to first-time buyers and existing homeowners who want to buy a ‘new build’ house. Under this scheme, you can borrow a percentage of the purchase price interest-free a period of times as long as you have at least a 5% deposit. This helps cover off the remaining deposit and in some cases alleviate some of the mortgage repayment pressure. The scheme varies from county to county and London has different rules also. There are restrictions around the purchase prices and often the type of property that can be purchased (ie. new builds). The amount you can borrow also varies, for example If you live in London, you can borrow up to 40% and in Wales 50% of the purchase price.
Right to buy - Available in many parts of the UK, this is where tenants who rent from councils and housing associations have the right to purchase their home at various discounts depending on the type of home and where it is located.
Shared ownership - This is where a tenant can buy a share of their rented home from the landlord and pay a reduced rent on the remaining share they do not own. They can, in time and when they can afford it, purchase the remainder of the property. There are various income limits and other conditions which vary depending on where you are in the UK.
Starter home scheme - This is where over 200,000 newly constructed, affordable government houses are being offered for purchase to certain groups for discounted prices.
Help to buying savings schemes - Similar to KiwiSaver in the sense that perspective homeowner savings are topped up by contributions from the government which can be used to purchase a property. However the government top up cannot be used for the deposit. The maximum top us is 3,000 pounds which applies to 12,000 of savings. There are limitations on the value of home you can buy also.
So the UK is building homes, helping people with their deposit via low interest loans, helping renters get onto the property ladder by giving them the rights to buy the property they currently rent at a reduced rate, topping up people's savings and even allowing them to buy their home in stages if they can’t afford to buy the lot on one go. It’s a comprehensive mix which covers both the demand and supply side of the issue and is very heavily targeted towards first home buyers and those on low incomes, with a preference in some schemes towards encouraging new builds.
Like anywhere these measures have not been without critics nor have they been a silver bullet to solve housing affordability and boost home ownership rates. Like any intervention they have also been costly for both local councils and the government’s coffers, however they are proactive, comprehensive and show a real desire to make an impact which can’t always be said for New Zealand.
The main take outs from the UK for me is the offering of ‘interest only’ for partial deposits. I see this being a great benefit, whereby any potential buyer with less than 20% deposit can receive an interest only loan by the government which would enable ‘first home buyers’ to access the most competitive rates in the market, saving them 1.00% to 1.50% on their rates.
It’s also alarmingly clear that the purchase price caps are simply not high enough in New Zealand for the areas that are actually the problem. With caps of $750,000 AUD in Australia and higher in some parts of the UK, a poultry $550,000 in Queenstown (one of the most expensive property locations in the world) is far from useful and should be increased or removed.
I’m not advocating for a large state funded house building programme, but but we need to ensure this town does not become elitist and can accommodate young working families - otherwise we risk becoming Aspen.