For many first time buyers (FTBs), whilst going through one of the most exciting yet arguably stressful times in their lives to date, the purchase of their very first home, their minds may not jump straight to mainstream politics. But checking out a speech given by the Housing and Planning Minister, Alok Sharma, may prove to be rather useful. Specifically, I make reference to his speech at the RESI conference on the 14th September 2017.
During the annual RESI conference, Sharma spoke about his intentions on “fixing the broken housing market”. Although his speech was aimed at builders and investors involved in the residential property market, much of his speech was of importance to FTBs.
In this report I will share with you my highlights from Sharma’s speech that I feel are important to any FTB looking to get their step on the first run of the property ladder. Why do I feel they are important to FTBs? Firstly, he sheds lights on his visions into the future of the market place- something everyone should consider when entering into property ownership. And, maybe more importantly for any individuals looking to purchase their first home, he talks specifically about future of home-building and the Help to Buy schemes. So, without further ado, here is my breakdown of Sharma’s RESI Conference Speech 2017 that I feel FTBs need to know.
My highlights from the Housing and Planning Minsters speech
Fifth time lucky?
There have been 5 planning minsters in the last 5 years. This clearly indicates the difficulty involved in the job. One could put two and two together and determine that part of what has heavily contributed to the difficulty of this position is related to the volatility of the property market since the property crash in 2008 and the scare in 2015. Combined with these uncertainties in the market (not helped by Brexit), there are issues of rising homelessness numbers across the UK, and we must never forget the tragedy of Grenfell Tower. As Sharma said himself, he became Housing and planning minister the day after the Grenfell Tragedy happened. Sharma made it clear that he and other ministers are dedicated and working together to “ensuring that buildings across the country are safe” and he wanted to extend his ambitious to ensuring the safety and happiness of tenants.
Sharma seems to be attempting to work with not just home-builders, but also home buyers. Claiming that more needs to be done to ensure individuals who need help to buy a home get that help, and that housing in general is made more affordable. Above all, the key message to gather from his speech is that his goal is to ensure that everyone should feel a sense of fairness towards the housing market. Whether they are home buyers or renting, whether they are in the private sector or in social housing; he is working towards a housing market that works for everyone… or so he says.
Does rental price and purchase price go hand-in-hand?
During the speech, Sharma addressed the concerns of the industry on the topic of rent control. And, when I say the industry- I mean builders and investors of the residential market. He stated that “rent controls under this new government are not going to happen”. Is that really promoting fairness in the property market? Well, looking at the statement from a first time buyer’s point of view, I would say no. The Housing minister has seemed to have easily forgotten the close links between the residential rental value and the residential purchasing value. Completely disregarding the idea of rental controls is telling landlords and builders that they will continue to have full autonomy of pricing in the rental market; a key influencing factor of a properties purchase value.
Being able to achieve the highest rental price possible, without limits, has arguably been a main contributing factor for the drastic rise in rental prices over recent years and therefore a rise in interest in ownership and prices of ownership. First time buyers can easily be out-priced by investors looking to make a return on an investment. In order for investors to make the biggest profit, they look to achieve the highest yield possible, then sell it on at profit. There are two options for an investor to increase a yield percentage. Pay less on the initial purchase price (a very hard ask when competition is already so tough), or outbid their competitors and put up the rental prices accordingly. When enough investors do this in areas- the entire landscape of the property market can change in the blink of an eye. Higher rents and higher purchase price do go hand in hand. If you can get your start in the market, great! But getting in and finding a home as a first time buyer seems to be becoming harder and harder.
Take the extreme example of London where demand for rental property has increased and rental prices are through the roof (if you’d pardon the pun). It’s not all the developers/landlords/investors fault. Admittedly it seems to be the consequences of very high levels of demand. But, this breeds opportunities of greed that naturally comes from a highly sought after product, in our case residential property; resulting in prices overall to have quickly spiralled out of control. All in all, this means that many have had to say goodbye to purchasing or renting in the capital. The market is an investor only landscape, where the words “What is the yield on that price?” are heard in place of “Is that a fair price?” Reported by RICS: 2017 has seen very high levels of hesitancy towards home-buyers purchasing property in London; mainly due to these eye-wateringly high rental and purchase prices.
So, was it a good move that Sharma had openly disregarded rental caps as being part of the solution, without having a complete alternative plan or full solution to the issues in place? Only time will tell.
Not four, but five pillars of success
The foundation of Alok Sharma’s speech was to address an article written by Property Week (who conveniently ran the RESI event). In which 5 things were laid out by the publication when listing what it is that they wanted from a new Housing and planning minister.
- “Turn the Housing White Paper into action”. Something that previous ministers haven’t quite been able to do.
- “Breath down the necks of authorities”. According to Property Week, local authorities need to get their local plans in order.
- “Address the future of the Help to Buy scheme”. The industry does need certainty.
- “Ensure representations are made on behalf of the construction industry throughout Brexit talks”. Sharma addresses this by stating that he understands the importance of access to the labour that the industry needs. He aims to bring forward 45,000 new skilled workers by 2019/2020.
- “Be bold on the Green Belt”. Sharma’s answer to this was that the “Housing White Paper is clear that the Green Belt land can be released, but only under exceptional circumstances”.
Targets and the role that local authorities play
He also stressed the need to build more homes- faster. Whether they are homes or buy to rent investments. But not stopping there, Sharma states that there are further intentions to improve the quality and designs of these new-builds and change the public mind set towards new developments.
With regards to he role that he sees the local authorities playing in assisting in making the property marketplace a better place, he says that the local authorities have a crucial role to play on housing delivery and that the government has set out the tools they need to deliver. By tools, he means the consultation for new planning reforms and process. The consultation, turned proposal, was announced by Sajid Javid to the Houses of Parliament on 14th September 2017. The proposal included a standard method for calculating local authorities, housing needs, and a statement of common ground to improve how local authorities work together. Javid claimed that the proposed change will help to increase housing supply and improve affordability. During Javid’s speech to Parliament were he made the proposals, he reiterated the governments aims to build one million new homes between 2015 and 2020 and another 500,000 before the end of 2022.
Regardless of whether this target gets reached, an insightful poll conducted by the MFS showed that 80% of respondents stated that they are not keen on the thought of living in a new-build home. So is simply building more new-builds going to solve the issue for FTBs? Or, should we concentrate on the quality, design and location of the new-builds? My opinion leans towards the latter. Surely making the new-builds attractive to first time buyers (and other potential buyers) is the way forward. For most, it is the biggest investment they will make to date. Making it as attractive as possible is surely the key (if you’d pardon the pun, again). This is something that might not be in the best interests for the bank accounts and profits of builders, although if we look at an overall picture, I strongly believe it would benefit them in the long-term; a strong, active housing market equals more sales and more opportunity to profit. Sharma touched upon this topic in his RESI conference speech and is claiming that he is looking for a solution to suit both parties. He emphasized that the government will promote increases in new and quicker methods of building quality construction, and an increase in the number and quality of homes. He also continues to say that the percentage of people living in new-build homes today would recommend their home-builder is lower in comparison to four years ago.
How good is Help-to-buy?
The scheme, Sharma claims, is very successful one thus far, since launching in 2013. It has helped over 120,000 people purchase a new-build home and he states that £8.6 billion has been confirmed for the scheme up until 2021, ensuring that it continues to support home buyers and stimulate housing supply. Not stopping their, he says that the government will work with the sector to consider the future of the scheme after 2021.
On a quick, final note, I can not write and article on the property market without addressing the infamous Stamp Duty Land Tax (SDLT). It has been widely reported by a range of sources, including Today’s Conveyancer, that due to SDLT many who wish to downsize or move up the property ladder, do not wish to move. This could lead to increased risks of a stagnant market- the worst thing for growth. It seems the government are putting all their eggs into the one, new-build home, sized basket. But, perhaps a first step to solving the issue for first-time-buyers is to reduce the cost of SDLT. This will not fix the problem long-term, nor does it ramp up housing supply, but it would encourage people to move property. This increases activity in the marketplace and would allow FTBs the opportunity and chance to get onto the property ladder in homes that are more likely to appeal to them. Just a thought.
If you need help purchasing a property, contact WTB Solicitors. All our expert conveyancing solicitors know that buying or selling a house is stressful, which is why we offer a personal service tailored to our clients’ needs. Of course we deal with all of the technicalities like checking legal ownership and the complexities of your mortgage and ensuring that everything goes smoothly and quickly but we think you will value the way in which we get to know you and your requirements.