In Britain we are currently experiencing a housing crisis and have been since 2008. This housing crisis obviously effects everyone in Britain and makes buying a home harder. The two main issues we see are the rising costs of house prices and the lack of houses being built. In this article we will explain the causes of the crisis are and what the current plans are to combat it.
What's Included?
The Causes for the Lack of Housing
One of the causes of the current housing crisis in terms of the lack of the house’s dates to the 1980s. In the 1980s the government brought in the Right to Buy scheme which allowed people to buy their council houses. As a result, millions were able to buy their council house and own their own home. Because of this there has been a lack of major housing building projects across the UK. This can be attributed to lack of funding, lack of policy and the lack of the private sector taking on projects. One of the other issues is the fact that Britain is quite a small Island. In comparison out of the 50 US states, 11 are bigger than the UK which means that space is a lot more limited.
One of the other issues is to do with land banking. This is where property investors buy a certain amount of land and keep hold of it. They keep hold of the land up until the price of land increases then sell it to make a profit. However, the issue with this is that it takes up the already limited land available for housing. This is perfectly legal to do but it does make it more difficult for companies and the government to build new houses without also spending a lot of money to buy out the land bankers.
Causes for the Increasing House Prices
When the UK first went into lockdown in March 2020 the government introduced a load of new economic measures. Some of these included the freeze in stamp duty and the new mortgage guarantee. This then led to a property boom when the UK came out of lockdown in mid-2021. We saw house prices rise 10% in November 2021 alone and this is expected to continue to rise. The estimation is that by January 2022 house prices will average a new high of £342,000. This makes it harder to afford a house especially when there hasn’t been as dramatic an increase in people’s wages.
Effects of the Housing Crisis
One thing we must take into consideration when looking at the effects is the idea of supply and demand. To put it simply if the demand is high but the supply is low then the price of that product will increase. So, because of the high demand for housing but the lack of new housing being built this has also had a knock on effect on the price. There are also external factors that have influenced on the crisis. The first being that wages have stagnated, which makes it harder to afford houses that are increasing in price.
Secondly interest rates have risen to 0.25% and with the uncertainty of the Omicron variant it could increase again. This rise would lead to an increase in mortgage costs for some homeowners. Finally, inflation is also on the rise with it rising to 4.2% in November 2021, the highest in a decade. With the news of Omicron and the threat of another lockdown it makes it difficult to predict the near future. The economy could react any number of ways and it could even get worse.
What are the Solutions to the Housing Crisis?
One of the obvious solutions to the crisis is to build more affordable housing. This would tackle the high demand for housing and may even bring down the price to an affordable price. These building projects could also be taken up by a mixture of local associations and the private sector. We have seen Sadiq Khan succeed in having new luxury housing built across London, with the hope that they are affordable.
There are many other policies that the government can expand on. These include the Help to Buy Scheme and improving on the private rented sector. However, this will be down to the government and the treasury to decide what happens. In this section we will go through and explain the various government schemes.
Lifetime ISA
ISA stands for Individual Savings Account, and it offers tax free interest payments. In order to set up a lifetime ISA you must be aged 18-40 and you can put a maximum of £4000 a year in this account until you’re 50. On top of this the government will add on a 25% bonus up to £1000 per year. You can also decide whether you will just put cash in the account or stocks, or a combination of both.
In order to use the money in your ISA towards buying your first home you must meet the criteria. Firstly, you can only use the account if you are buying a mortgage and if the property costs less then £450,000. You need to have a conveyancer or a solicitor to act for you in the purchase. This is because the ISA provider will pay the funds directly to them. Finally, you can only buy the property 12 months after making your first ISA payment.
Help to Buy: Equity Loan
This loan helps first time buyers towards the cost of buying a new build home. In order to apply for this loan, you must be above 18, a first-time buyer and able to afford all the fees and interest payments. However, you can only buy a new build home with this loan. The property must also have been sold by a help to buy registered home builder. Finally, it must not have been lived in before you buy it
There is a maximum property purchase price limit on the property depending on the region of the country.
• North East- £186,100
• North West- £224,400
• Yorkshire and the Humber- £228,100
• East Midlands- £261,900
• West Midlands- £255,600
• East of England- £407,400
• London- £600,000
• South East- £437,600
• South West- £349,000
With this you will pay at least a minimum deposit of 5% of the property purchase price. You then arrange a repayment mortgage of a minimum of 255 of the property price. The loan allows you to borrow anywhere from 5% to 20% of the property purchase price. However, in London you can borrow up to 40%. The percentage you borrow is used to calculate how much your interest and loan repayments. In terms of interest, you won’t pay any for the first five years however, on the sixth year you pay an interest rate of 1.75%.
Like with any loan there is a set timetable of when to pay back the loan by. It must be paid by the end of the loan term which is 25 years, when you sell your home and once you’ve paid off your repayment mortgage. When it comes to paying back your loan, you can only pay a minimum price of 10% of market value.
The First Home Scheme
This scheme is essentially new homes that are discounted by a minimum of 30% when put on the market. Once the discount has been applied the first sale of the house must be no higher than £250,000, or £420,000 in London.
In order to qualify for this scheme, you have to meet a set criterion. The first is you obviously must be a first-time buyer, but you must also earn less then £80,000 in the tax year before hand. This wage cap applies to whether you are buying a house by yourself or as part of a shared ownership. The final piece of criteria is the buyer should have a mortgage plan to fund at least 50% of the discounted purchase price.
Conclusion
In conclusion, as of January 2022 it doesn’t look like the rise in house prices will stop anytime soon. With this we will see more of the issues we listed earlier in this blog. People will hope that these government schemes will work however, more government intervention maybe required. We also have to take into account the boom and bust economy we live with. So, at the moment we are currently in a boom but soon that will change. However, when the housing market will next crash, we simply can’t predict.
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