Mortgages: Eligibility

John Howell Excerpts

Monday 23rd October 2017 Westminster Hall

[Paul Scully (Sutton and Cheam) (Con)]

I beg to move,

That this House has considered e-petition 186565 relating to eligibility for mortgages.

It is a pleasure to serve under your chairmanship, Mr Hollobone. The petition, which has attracted 147,307 signatures, reads:

“Make paying rent enough proof that you are able meet mortgage repayments”.

The petitioner, Jamie Jack Pogson, goes on to say:

“Since living on my own I have paid £70,000+ in rent on time yet still struggle to get a mortgage. Unless you’re getting handouts, wealthy or in receipt of inheritance it’s almost impossible. I want paying rent on time to be recognized as evidence that mortgage re-payments can be met.”

The broken housing market is one of the greatest barriers to social progress in Britain today. Whether buying or renting, housing is increasingly unaffordable, particularly for ordinary working-class people who are struggling to get by. The number of people getting joint ownership mortgages has gone up to 74% from 66% 20 years ago because of the need for two people’s incomes. The average age of first-time buyers is also creeping up. Deposits have increased significantly to £48,000 on average across the country. Here in London—I am a London MP—it costs £94,000 on average to get a deposit.

The key to fixing the housing market is clearly to build more homes, which is why the Government are committed to delivering 1 million more homes by the end of 2020. However, finding a deposit is still one of the biggest problems that people face when looking to buy a new home. The Government’s Help to Buy schemes have helped more than 320,000 people across the UK to buy a new home, including more than 275,000 first-time buyers. The equity loan scheme provides buyers with an equity loan of up to 20% of the value of a new build property, which is repayable once the home is sold. I am pleased by the recent announcement of a further £10 billion investment in the scheme to help an estimated 135,000 new buyers and to ensure that the scheme can continue to 2021.

Since the equity loan scheme’s launch, more than 130,000 properties have been bought with the support of the equity loan scheme; the majority—81%—were bought by first-time buyers. The scheme has not just helped people to buy a new home. Industry experts have also credited Help to Buy with boosting supply and generating benefits for communities, councils and the Exchequer. The London Help to Buy scheme offers an equity loan of up to 40% for Londoners who have a 5% deposit. The help to buy ISA will also continue to help people to save up for their first home by providing them with a maximum Government bonus of £3,000 on £12,000 of savings—a boost of 25%. However, far too many hard-working young people from all walks of life are still struggling to get a foot on the property ladder.

[John Howell (Henley) (Con)]

We face a situation in which banks have to ensure that they give good loans, but people want their rental payments to be taken into account. Rental payments do not seem to me to be a good guarantee for future performance, so does my hon. Friend have any suggestions about how they might be taken into account?

[Paul Scully]

I appreciate my hon. Friend’s important point, which I will come to later. Rent clearly does not give any guarantee for the future but it gives a better guide to creditworthiness, in the sense that people have spent time paying rent regularly, on a monthly basis. As we heard, the petitioner spent £70,000 with little to show for it other than that he paid his bills, whereas obviously, when someone has the aspiration of home ownership, that same £70,000 could have been building up equity. If someone has a good record in one area, they would hope that that, combined with all the other checks that banks need to do, would be good for credit for a mortgage as well.

The Government have doubled their housing budget and are investing £7.1 billion in the expanded affordable homes programme to deliver 225,000 affordable housing starts by March 2021. In addition, the housing White Paper sets out bold new plans to fix the broken housing market and build more homes across England. Starter homes, which are targeted at the first-time buyers we have been talking about, form an important part of the Government’s action to help more than 200,000 people become homeowners.

A £1.2 billion starter homes land fund will be invested to support the preparation of brownfield sites for starter homes and other affordable home ownership tenures. I am delighted that this year we will see the first starter homes being built on brownfield sites across the country. They will be built exclusively for first-time buyers between 23 and 40 years old, at a discount of at least 20% below market value. Alongside that, a new rent-to-buy scheme will help hard-working households to benefit from a discounted rent set flexibly at levels to make it locally affordable so that they can save for a deposit to purchase their home.

Stamp duty means that the average first-time buyer typically faces a tax bill of £11,427 here in the capital according to the Land Registry, which recorded the average price paid by new entrants to the London property market as £428,546. Even a starter flat costing a quarter of a million pounds attracts a stamp duty bill of £2,500. In my view, the Government should aim to take most first-time buyers and some downsizers purchasing smaller properties out of this tax entirely, to reduce the burden on family homes, and to fix anomalies such as those around shared-ownership properties, which are an increasingly popular way to get on the housing ladder.

The evidence is clear: stamp duty, like all transaction taxes, reduces the level of transactions. The effects can be pretty stark. For example, ahead of the buy-to-let surcharge in March 2016, mortgages soared by 71% but then dipped to 60% the month after. That was not just a short-term effect. Six months later, in December 2016, buy-to-let mortgage lending was down by nearly 40% on the year before, whereas other mortgage lending was up.

Introducing the buy-to-let surcharge clearly reduced transaction levels, and the best way to boost them again is to cut stamp duty for homeowners, which should boost transactions and economic growth. By focusing on residential homes, such a cut would also boost home ownership. At the same time, shared ownership—an increasingly popular way to help people buy part of a property—needs stamp duty reform. Currently, the providers of these affordable home ownership properties and their customers often pay twice: providers pay on the whole property and then shared owners pay again when they buy their share. Stamp duty in such cases should be charged only once, making it even more affordable for people to get on the housing ladder.