Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Minutes of Evidence


Examination of Witnesses (Questions 20-39)

MR PETER WILLIAMS AND MR BOB PANNELL

28 NOVEMBER 2005

  Q20 Martin Horwood: You are the ones that are doing the lending, and if you are lending more, the flurry of lending is making more . . .

  Mr Williams: Sure. Can I turn it around? Would you like to suggest that the lending ceases?

  Q21 Martin Horwood: Not ceases, but if in effect what you are doing is just, in one phrase, enabling people to stand on financial tiptoe, you are not actually making the market really more affordable for them and it will have the effect of raising prices.

  Mr Williams: That is clearly the risk that is run.

  Mr Pannell: What it does do is ensure that the market is very efficient and fair for everybody that is able to enter home ownership on a sustainable basis. What we are doing is very much broadening the tenure as wide as we prudently can.

  Q22 Martin Horwood: From April, the Government is allowing housing to be included in personal pension plans. Do you think there is also a risk of that being inflationary?

  Mr Williams: There is a risk, but all the evidence suggests it is over-stated. The evidence that has been put in the public domain is very limited. We would have liked to see the Treasury publish its own impact assessment. It would be helpful, I think, to calm the debate that is obviously raging in the marketplace about what impact it has, but the collective view across lenders is that the effect is over-stated. There may be some sub-market effects but generally I think people are more confident that it will not have the impact that has been argued.

  Q23 Martin Horwood: But it will have some impact.

  Mr Williams: At the margin, yes.

  Q24 Mr Betts: Going on to the issue about supply, the Government clearly believes that one of the solutions to all this difficulty is to get a million more homes for people to buy as home owners in the next five years. Do you have concerns about that? Do you have a degree of scepticism that it actually is achievable?

  Mr Williams: It probably is achievable, simply because we know that net something like 200,000 households a year move into home ownership and over five years therefore you could climb to a million. We saw a million and a half households become home owners over the period 1997-2003, so it is probably achievable. What we are saying is that there is some evidence to suggest that the demand side is changing. The work we have done on potential first-time buyers does indicate something of a sea shift in the profile of people coming forward. We know households are getting older before they enter home ownership, we know there are issues about job mobility, we know there are issues about debt, and all of that is beginning to change, we believe, some of the preferences around home ownership such that one cannot automatically assume the future is like the past. So the reason for our slightly cautious remarks in our submission was to reflect that, that we do not think it is a given in quite the way that some people may easily suggest.

  Q25 Mr Betts: Is there a danger—this is something that has been raised over the last 20 years—that some people have been encouraged and enticed into owner occupation who probably would be best suited by other tenures, particularly in light of their personal circumstances, but it is presented as almost the one and only thing that you really ought to try and achieve?

  Mr Williams: We are very clearly strongly interested in people, if they enter home ownership, being able to sustain home ownership, as I am sure you would agree, and obviously, in the past a whole variety of issues were there. Tax relief would be an example of ways that may have encouraged people to enter the tenure earlier than they might have done. Certainly, going forward, given the way the world has changed in terms of the labour market, more contract-based employment, more self-employment, etc, people clearly should enter the market at a point where they think they can sustain the tenure, and there is less support now, with no tax relief, with a somewhat diminished income support for mortgage interest regime, there is less support for people who then fall away in that process. We therefore think people do need to approach it with a degree of care, which they always should have done, but that is even more true of the future.

  Q26 Mr Betts: Is there an optimal level for home ownership? Are we about there or are we close to getting there?

  Mr Pannell: It is actually an area where there has been relatively little work done on the potential limits of home ownership. The last robust assessment was made in the late 1990s, when it was suggested that home ownership could comfortably grow to something like 72-73%. That may have moved out a little bit more in the intervening period. Probably, once you start looking much beyond the mid 70s, you are not likely to move much beyond the mid 70s within the foreseeable future. That may be a natural limit.

  Q27 Mr Betts: So that is the limit of people at any one time, but because of this delay in people moving on to the home ownership ladder, ultimately probably only 80% will become home owners at some time?

  Mr Williams: That is right. Over the life cycle, probably 80% of people will have been home owners and, of course, we know Britain is 13th in the European home ownership league table. There are a number of countries at 90% plus. There are a number of countries at 80% plus. We are close to the EU average, so if we are succeeding in economic growth terms, logically you would expect home ownership to be able to rise.

  Q28 Sir Paul Beresford: The difficulties people see over pensions are part of the fact that they are using housing as an alternative to an additional pension.

  Mr Pannell: That is certainly true on the part of many households.

  Q29 Alison Seabeck: Talking about extending home ownership, to pick up one of the points in your submission, if Barker is successful in lowering real house price gains, will this raise credit risk associated with loan to value advances and therefore affect lenders' willingness to produce low-cost home ownership packages? Surely, this will impact on the very people who are striving to get on to the home ownership ladder. What specific evidence do you have from lenders that this is a likely outcome?

  Mr Pannell: No specific evidence as such, and I cannot remember the exact figures that Barker was suggesting real house prices may be reduced by, but I think in terms of orders of magnitude, it was something like halving the real house price increase by two% down to one%. Given that the mortgage business nowadays is very competitive and margins are very fine, that is bound to have an effect on the risk-reward calculations that all lenders need to take forwards. It will at the margin reduce their risk appetite for certain propositions. One of the examples of that would be some forms of low-cost home ownership.

  Q30 Anne Main: Just to tease out the constraints imposed on lenders with respect to those who buy property on exception sites, you seem to be unhappy about that. It does seem to be unfortunate that at the lower end of the market there seems to be the least choice. Are you saying that we should be looking at improving the amount of choice for lending in the low-cost home ownership programme?

  Mr Williams: Yes, I think the collective view of lenders is that the low-cost home ownership programme in England has been neglected. There are specific issues around section 106 sites in terms of the restrictive requirements imposed upon them by PPG3 and its revisions. We have argued strongly for some amendment to those over a period of time, that has not been forthcoming, and the upshot is that lender appetite to lend on some of those properties has diminished.

  Q31 Anne Main: Those are at the lowest end of the market, generally speaking.

  Mr Williams: They can be at the lowest, though not necessarily. Some of those sites are relatively expensive. There is often second-hand property that is cheaper elsewhere, but they are in chosen locations and particular groups of people, so there is pressure for them, certainly, but I do not think by any means they would necessarily be at the bottom end of the market.

  Q32 John Cummings: Do you have any concerns over lenders being asked to underwrite the Government's Market Homebuy scheme?

  Mr Williams: No. We initiated that discussion with the Government. We were very pleased to be able to follow up just what I said in reply there, that we felt the low-cost home ownership programme had been neglected, we were keen to see ways in which it might be expanded, and we were therefore comfortable with having discussions with the Government and we hope announcements will be made shortly which fulfil that.

  Q33 John Cummings: You therefore agree that equity sharing schemes help reduce the problems of over-commitment?

  Mr Williams: It can do, and it is back to your point about the balance between supply and demand. Clearly, if somebody can only afford 75% of a home, an equity sharing scheme is helpful in assisting them into that market. There are issues around equity loans. This is not the solution to everything, by any means, but at the margins, it is a scheme that does have potential to help more people enter home ownership in a supportable and sustainable way.

  Q34 John Cummings: In a sustainable way, referring to the scheme, it is certainly helping the most appropriate people?

  Mr Williams: This is a scheme yet to happen. The existing Homebuy scheme by and large achieves its objectives. Some recent research published by ODPM supports that, though there is a slight tendency for the households that get it at the margins to have slightly better incomes than the bottom of the market. There are reasons for that. I think this is all about how the scheme operates, and I think, as we build the low-cost home ownership sector, we can improve its targeting. So yes, there is no reason at all why we cannot ensure that that programme really does deliver low-cost home ownership to people who want to become home owners and can over the long term sustain home ownership, which is the key thing.

  Q35 John Cummings: If you have identified weaknesses in the scheme, have you made these known to the Department?

  Mr Williams: Yes.

  Q36 John Cummings: Have you had a favourable response?

  Mr Williams: No.

  Q37 John Cummings: Have you had any response?

  Mr Williams: The issues have been raised over a number of years. They are raised in the Home Ownership Task Force report and some of the work to be done in terms of targeting of those schemes still needs to be completed.

  Q38 John Cummings: But have you had any response from the Department?

  Mr Williams: The Department responded, for example, to the Home Ownership Task Force report.

  Q39 John Cummings: No, on those particular issues that you have raised.

  Mr Williams: No.


 
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