Policy paper

2010 to 2015 government policy: homebuying

Published 7 November 2012

This is a copy of a document that stated a policy of the 2010 to 2015 Conservative and Liberal Democrat coalition government. The previous URL of this page was https://www.gov.uk/government/policies/helping-people-to-buy-a-home Current policies can be found at the GOV.UK policies list.

Issue

Surveys and research consistently show that most people want to own their own home. But with house prices rising rapidly in the 10 years from 1997, many potential home buyers have not been able to afford it.

Many people have also found it even harder recently to pay the high deposits needed for a mortgage.

Actions

Help to Buy

We’re supporting people’s aspirations to own their own home. The government’s Help to Buy scheme enables people to buy a home priced up to £600,000 with a deposit of as little as 5%.

There are 3 types of Help to Buy scheme:

  • Help to Buy: equity loan - the government lends up to 20% of the value of a new build home
  • Help to Buy: mortgage guarantee - will run until 2016 and enables lenders to offer homebuyers 80% to 95% mortgages
  • Help to Buy: NewBuy - aims to help buyers who have a deposit of at least 5% to buy a new-build home

Right to Buy

We’ve encouraged more tenants to exercise their Right to Buy their council house by increasing the maximum discount that buyers can get off the market value of their home, to £75,000 outside London and £100,000 in London. Further increases to the discount are planned for Summer 2014.

Buying a new-build home

We’re working with the Home Builders Federation and the Council of Mortgage Lenders to help people buy a newly built home through the Help to Buy: NewBuy scheme.

Preventing repossessions

We provide a range of measures to help homeowners in financial difficulty.

Background

Giving people the Right to Buy

Councils have always been able to sell houses to their tenants, but the Housing Act 1980 extended the practice to all social tenants with secure tenancies, giving them the legal right to buy their home, rather than it being at the landlord’s discretion.

The Housing Act 1980 also introduced a discount for buyers so that they could buy their council or housing association home at a lower price than the market price.

The last 30 years have seen significant changes to social tenants’ right to buy their properties. These include big reductions to the discounts available, which have been reversed to allow more tenants to buy. Over 11,000 homes were sold in England in 2013 to 2014, more than treble the number sold in 2011 to 2012.

Residential leasehold

Leasehold is a long-established way of owning property in England and Wales based on an agreement between the freeholder and leaseholder (sometimes also referred to as landlord and tenant). There are (by industry estimates) around 1 million houses and 2 million flats held on long leases in England – ‘long’ meaning more than 21 years’ duration when granted. Around 40% of recent new-build properties in England are leasehold.

The law about leasehold tenure is complex. The aim of the law about leasehold tenure is to protect both leaseholders and freeholders.

Who we’ve consulted

The ‘Reinvigorating Right to Buy’ consultation ran from 22 December 2011 to 2 February 2012. We published our response to the consultation on 12 March 2012.

The consultation resulted in the discount for Right to Buy being increased to a maximum of £75,000 when the tenant has lived in an eligible property for 5 or more years. Money from additional sales will be used to fund the building of new affordable homes. Nearly all councils have now signed an agreement with the government that each additional home sold nationally under Right to Buy will be replaced by a new affordable home to rent.

Appendix 1: preventing repossessions

This was a supporting detail page of the main policy document.

The government is committed to protecting the vulnerable and to trying to reduce the number of homeless people. We recognise that the threat of repossession remains very real for homeowners across the country and we’re committed to ensuring that repossession is always treated as a last resort.

Targeted government support includes:

  • £19 million Preventing Repossessions funding allocated in February 2012 to all local housing authorities in England to offer small interest free loans to households at risk of repossession to assist with specific debts and address immediate short term financial difficulties
  • Support for Mortgage Interest, paid as part of Department for Work and Pension benefits, to help out of work households meet their monthly interest payments -183,000 households are currently benefiting from this scheme
  • funding for free ‘on the day’ legal advice and representation for those facing repossession in every county court in England and Wales
  • the Mortgage Pre-Action Protocol, put in place by the courts and requiring lenders to prove to the courts that they have exhausted every possible option before applying for a repossession order
  • £33.6 million funding for 2013 to 2014 for not-for-profit advice providers in England to develop new ways to continue to provide relevant, free advice and effective support to the most vulnerable people at local level
  • £3 million for the National Homelessness Advice Service (run by Shelter and Citizens Advice) in 2012 to 2013 to provide frontline advice staff with training and support so that help is on hand for families when they need it most
  • providing funding for the Money Advice Service to commission free face-to-face debt advice services in 2012 to 2013 to help up to 150,000 over-indebted households most in need of advice

Appendix 2: help for home buyers

This was a supporting detail page of the main policy document.

Help to Buy: equity loan

The Help to Buy: equity loan scheme will provide £9.7 billion of additional investment to help people into home ownership. The scheme will help up to 194,000 home buyers, as well as providing a boost to the UK’s construction sector.

The Help to Buy: equity loan is available to all those who aspire to own a new build home that have a 5% deposit but struggle to access or afford the repayments on a low deposit mortgage.

The government will:

  • provide an equity loan worth up to 20% of the value of a new build home, interest free for the first 5 years, which can be repaid at any time or when the home is sold
  • significantly widen the eligibility criteria for equity loans to ensure as many people as possible are able to benefit. The maximum home value will be £600,000 and there will be no income cap constraint
  • ensure that the scheme is open not only to first time buyers but also to all those looking to move up the housing ladder

Help to Buy: mortgage guarantee

The Help to Buy: mortgage guarantee scheme helps people buy a newly built home or an existing property with a deposit of only 5% of the purchase price.

The scheme is open for loans to existing homeowners, as well as first time buyers. The loans are available on new and existing houses with a value of up to £600,000.

The Help to Buy: mortgage guarantee scheme will increase the supply of high loan-to-value mortgages by offering a government guarantee to lenders who provide mortgages to people with a deposit of between 5% and 20%.

The scheme is not available for those wishing to purchase a second home or buy-to-let property and only repayment mortgages are offered under the scheme.

The guarantee protects the lender rather than the borrower against losses. Borrowers remain fully responsible for their mortgage payments and any shortfall in the normal way.

Lenders will pay the government a commercial fee for each mortgage that they guarantee, which covers the expected cost of the scheme for the taxpayer.

See the Help to Buy website for more details on these 2 types of the scheme.

Help to Buy: NewBuy

The Help to Buy: NewBuy scheme was launched in March 2013 and it enables all households, not just first time buyers, to buy a new build home with a 5% deposit. The scheme is industry led and is open to all builders and lenders operating in England.

Shared ownership

The government also helps social tenants and other first-time buyers to buy a home through shared ownership schemes.

These allow people to buy an initial share of a home and pay rent on the remainder, usually to a housing association. Shared ownership is aimed at first-time buyers who are unable to buy a property suitable for their needs without financial help.

Appendix 3: Right to Buy

This was a supporting detail page of the main policy document.

Right to Buy gives eligible people who live in council properties in England the right to buy their home at a discount. The scheme is open to people who are secure tenants of a local council and who have spent at least 5 years as a public sector tenant.

Tenants of housing associations who had secure tenancies when their homes were transferred from the local council to the housing association also have a preserved Right to Buy. Landlords have a legal duty to explain how tenants can exercise their Right to Buy.

Further information for tenants including a Right to Buy calculator and guidance on applying can be found on the Right to Buy website.

Changes to Right to Buy

The government announced its intention to increase the caps on Right to Buy discounts to encourage more tenants to take up the Right to Buy in October 2011.

The main changes to Right to Buy that took effect from 2 April 2012 were:

  • the maximum discount that buyers can get on the market value of their home was increased to £75,000 (from 25 March 2013, this increased further to £100,000 in London boroughs)
  • extra homes sold under Right to Buy will be replaced by a new home for affordable rent nationally, with money from extra sales put towards the cost of replacement
  • we made provision to cover some of the cost of withdrawn applications: councils will now retain £2,850 in London and £1,300 in the rest of England per sale
  • we decided to retain the ‘buy back provision’, following representation from councils, but this will be capped at 6.5% of those receipts available for replacement stock

There was no change to the qualifying criteria for Right to Buy or Preserved Right to Buy.

Our response to the ‘Reinvigorating Right to Buy’ consultation sets out how we will:

  • retain and extend the ‘cost floor’ from 10 years to 15 years: this means that the discount is reduced if the landlord has spent money building or maintaining the home in the last 15 years (so landlords won’t have to sell homes for less than they cost to build)
  • allow councils to sign an agreement to use the money from additional council home sales in their local areas for one-for-one replacement

In January 2014 the government announced that the maximum discount for a house will increase from 60% to 70% of its value, and the £75,000 cap will start increasing in line with the consumer price index rate of inflation.

Plans are underway to reduce minimum eligibility criteria from 5 to 3 years. These changes are planned to be in effect in 2014, subject to parliamentary approval.

Interest rates for Right to Buy mortgages lent by local authorities

Until 1993, local authorities had to offer mortgages for tenants who wanted to exercise their Right to Buy but who couldn’t get a mortgage on the open market.

Paragraph 1 of Schedule 16 to the Housing Act 1985 specifies how local authorities must set their interest rate on mortgages arranged since 3 October 1980. The legislation requires authorities to charge their borrowers the higher of 2 interest rates:

  • the Standard National Rate, which is set by the Secretary of State for Communities and Local Government, or
  • the applicable local average rate, based on the authority’s own borrowing costs

The Standard National Rate of interest is currently 3.13%. It was last changed on 1 April 2009.

For further information, please email Gladys.Essessien@communities.gsi.gov.uk.

More information

We have provided more information and advice for tenants on the costs and responsibilities of buying and maintaining a home. This will help tenants to make informed decisions about their suitability for Right to Buy.

We have also produced factsheets for local authorities and lenders about the changes to Right to Buy.