Westminster Hall
Thursday 16 July 2009
[Joan Walley in the Chair]
Housing and the Credit Crunch
[Relevant documents: Third Report from the Communities and Local Government Committee Session 2008-09 HC 101 and the Government response Cm 7619. The Eighth Report of the Communities and Local Government Committee, Housing and the credit crunch: follow-up, HC 568.]
Motion made, and Question proposed, That the sitting be now adjourned.-(Mr. Ian Austin.)
2.30 pm
Dr. Phyllis Starkey (Milton Keynes, South-West) (Lab): In opening the debate, I want to set the report in context and draw Members' attention to the fact that a second report on this issue has just been published-the Committee's eighth report of this Session-which is the second stage of our look at housing and the credit crunch. I shall refer to some of that report's content, although the Government have not yet had time to respond to it.
Let me start by restating the importance of housing policy to Members across the House. That is reflected in the number of inquiries that my Committee has published this Session on matters of housing policy, notably our reports on affordability and the supply of housing and on rental housing. Almost all Members of Parliament know from their constituency case load what an important issue housing is. The mix of relevant issues will differ between constituencies, but a big issue for all MPs is the difficulty that people have in accessing affordable housing, whether to buy, part-buy or rent. That is the background to the report.
In our earlier reports, we endorsed the Government's decision to set very challenging house building targets, including on the proportion of affordable housing and homes for social rent, so the Committee has been greatly concerned by the effect that the credit crunch has been having on the Government's ability to deliver those targets and by its other effects on the housing market. As a result, we decided to have a one-off session in December 2008, which is discussed in the main report, and a follow-up session with the same witnesses in June 2009.
I shall go through some of the main points that came out of the report and the Government response to it, starting with house building targets. We have already welcomed the Government's targets to deliver 2 million homes by 2016 and 3 million by 2020, which equates to 240,000 homes a year. The Government were starting to increase the rate of house building before the credit crunch intervened, at which point house building rates dropped through the floor. There were then voices calling for the Government to revise their targets on the basis that they would have difficulty in delivering them, but we do not think that they should change the targets.
Clearly, the timeline to reaching the targets will be different, but they are important; indeed, we think that they still are not high enough. The latest results from
the national planning and housing advice unit suggest that rather than 240,000 extra homes a year being required, 252,000 will be required up to 2031 if we are to deliver on housing need and to meet not only the continued growth in households but the backlog that built up in the decades when house building did not keep pace with household growth. So we think that the targets should be retained, even though we recognise that the Government will have difficulty in reaching at least the 2016 target, because of the credit crunch.
We welcome the various measures that the Government announced before our first report, as well as the extra £1.5 billion that they have subsequently brought forward. We welcome in particular the provision of additional funding to housing associations, and now councils, to enable them to bring forward more social rented homes. We also welcome the steps that have been taken to improve the flow of mortgage finance, because we have received considerable evidence that the lack of mortgage finance is a huge problem for those who are attempting to buy at market rates and in the shared-ownership sector.
We have highlighted the key issue that, if house building is to recover when we start coming out of the recession and as a result of the measures that the Government have been taking, we have to retain the skills and expertise of those who work in the construction industry within that sector. If we do not, we will repeat what happened after the last recession, when it took the house building industry far too long to recover and rebuild its skills once all the other factors were removed and once mortgage finance was flowing again and people were able to buy. So we are very concerned about retaining skills and capacity. We are particularly concerned that, when the Government consider how to increase house building, they should reconsider the mix of housing types, because we believe that the change in the economic situation has altered people's ability to exercise the home-ownership option.
Now that I have given an overview of the issues that we have raised, let me pick out one or two of them for discussion. I am pleased to see that several other hon. Members have arrived in the Chamber; no doubt, they will wish to contribute to the debate from their different viewpoints. I have mentioned the difficulty that first-time buyers and people on low-to-moderate incomes have been experiencing in expressing their need for housing through having the economic ability to buy. We are particularly concerned that low-cost home-ownership schemes have suffered because of people's inability to access the mortgage finance that they need.
We have also raised our concern that the Government, in their commendable wish to tailor schemes to meet the evolving needs of different groups, ended up with a complicated system with a variety of low-cost ownership schemes that it is difficult for people to navigate their way through. The Government have responded to that concern by saying that all the schemes are at least delivered through the single point of a contact homebuy agent. I know from my constituency how effective such measures can be, but we are pleased that the Government have now launched a rent-to-homebuy scheme to meet the further needs of people who want to rent before moving into shared ownership. However, we still feel that the Government need to go further in clarifying and properly signposting the different schemes that are available, so that people are able to benefit from the scheme that is most appropriate to them.
On the balance of housing tenure, I think that we all recognise that most people aspire to own their own home. It is clear, however, following the chaos that ensued with the sub-prime mortgage market and the practice of encouraging people on uncertain and irregular incomes to enter into heavy borrowing commitments that they were then unable to maintain, that even when the mortgage system is up and running properly again, a tranche of people who would previously have been able to access mortgage finance through the sub-prime market will no longer be deemed to be prudent risks and therefore will not be able to access mortgage finance.
As a result, we think it is obvious that more people will need to rely on the social rented or market rented systems in future and that the Government should recognise that and reconsider their overall policy. We have previously pushed the Government to increase the annual target for new social homes, and we are pleased that they have raised it to 45,000. They should perhaps be keeping that under review and increasing the target still further, because there will be a greater need for social rented homes.
The various steps that the Government and others are taking to encourage the transition between rental and ownership, such as the rent-to-homebuy scheme, are extremely welcome. There is possibly a need for more such schemes. I should like to mention a housing association scheme in my constituency, which is run by Places for People at Wolverton Park. I have spoken about that development before because it is in the old railway engineering works, so it is architecturally interesting as well as being a mixed-tenure development. It has come on stream just when finance is particularly tricky, and Places for People has responded to that by developing a range of financial products to offer to potential buyers, including 100 per cent. mortgages with no deposit, an equity loan of up to 30 per cent. and a buy-back guarantee for the first three years to protect the individual against negative equity.
Places for People is also encouraging people to rent first, with the option of buying subsequently, so that it can maintain a truly mixed-tenure development, while ensuring that the properties are occupied and homes are not standing empty. That is a good example of how a housing association can work to complement the measures that the Government and, of course, some private developers are taking to make sure that houses are occupied and are not left empty simply because individuals do not have access to the mortgage finance that they need.
Although I think that everyone accepts that the slow-down in house building is primarily related to the inability of individuals to buy and the reduced access to mortgage finance, some have suggested that a relaxation of environmental standards on new homes and possibly also a relaxation of other requirements on developers, such as the existing section 106 requirements, would enable developers to bring forward housing more quickly. The Committee was absolutely clear that it felt the environmental standards set out in the code for sustainable homes and in building regulations must be maintained. It would be short-sighted to reduce those standards, because the homes that are being built are not just for now; they are for the next 50 years at least.
Such standards are also a key part of encouraging the construction skills and products that underpin increasing the environmental efficiency of our homes, so it is important to ensure a guaranteed market for those products. If the Government were to reduce those standards now, it would send an extremely bad signal and reduce still further the market for the sort of construction skills and equipment that are necessary if we are to improve our housing stock and ensure that new houses are built to much higher standards. Obviously, the Government's target for all new homes to be zero-carbon by 2016 is an important part of that.
On mortgage finance, we were particularly concerned-I am trespassing slightly here because this was in our second report rather than our first-that the feedback we got from the mortgage lenders indicated that the Government's asset-backed securities guarantee scheme did not seem to be working as well as it should. Although that is primarily a matter for the Treasury Committee rather than us, it is important to flag up the issue. The Treasury Committee has taken evidence along roughly the same lines and will, doubtless, be making recommendations on how it believes that mortgage finance schemes can be improved.
The final subject to which I shall turn is that of existing home owners and the measures that need to be taken to try to prevent them from losing their homes through repossession if they have problems in sustaining their mortgages. We were concerned that some of the measures that the Government have put in place- the pre-action protocol and the Financial Services Authority guidelines on the ways in which lenders should approach people who are in danger of mortgage repossession-cannot be enforced, and we wanted the Government to consider sanctions that could be put in place for non-compliance. We certainly had evidence that suggested some lenders are using repossession as a first resort, rather than as a last resort. That is why we were particularly concerned that lenders should be held to the commitments and guidelines to which they are supposed to comply.
We welcome the various schemes that the Government have put in place, particularly the mortgage rescue scheme. However, it has already been noted that the scheme has helped many fewer people than expected. From the evidence that we were given, it was not at all clear whether that was because a lot fewer people were in the eligible group and at risk of mortgage repossession than expected, in which case the scheme would obviously not help that many people, or whether people were not aware of the scheme and were not gaining access to it. The Government need to look much more closely at what is happening in relation to mortgage repossession schemes and to consider whether or not the lack of people being helped is good news in the sense that not that many repossessions are going forward.
Mr. Nick Raynsford (Greenwich and Woolwich) (Lab):
Like many of us, I am sure that my hon. Friend has noted the Council of Mortgage Lenders' downward revision of the number of anticipated repossessions from, I think, 75,000, which it was forecasting earlier this year, to the latest figure of 60,000. She gave her surmise about the impact of the Government's measures and the fact that the protocol is leading to forbearance and the avoidance of repossession action. Those figures
seem to suggest that repossessions are being avoided on a larger scale than was perhaps expected. Would she like to comment on that?
Dr. Starkey: That is certainly probable. It is a matter of concern that nobody seems to know the answer one way or the other, but it is most likely that that might be a contributing cause. The lenders themselves gave evidence that indicated a much more active process is taking place at the moment and that individuals who are having financial difficulties are speaking to their lenders at a much earlier date than they had done previously.
We are all aware of the psychology of people putting their head in the sand and hoping that their debt problems will go away. Many of us have constituents who come to us with consumer credit problems and the first thing we say is, "Why on earth didn't you seek help earlier?" People have a tendency to wait until the whole thing has become completely insurmountable before asking for help. Probably because of all the publicity about repossessions and the schemes available, it appears that people are at least speaking to their lenders at a much earlier stage.
Let us be blunt and point out that the lenders themselves have recognised that the state of the housing market means that it is not in their interests to repossess, because the only point in a mortgage company repossessing a property is so that it can sell the property and achieve a capital inflow. The current state of the market means that mortgage companies would not be able to sell, so it is in their interest to maintain the person in the home and to get some regular payments from them, even if the amount is less than what is actually due.
A further issue is that a significant number of repossessions have been in respect of buy-to-let mortgages. That is obviously of concern to the person who owns the home, from whom it is repossessed, but there is a separate issue regarding the tenants of buy-to-let landlords, many of whom first realise that they are losing their home when the property is repossessed, despite having paid rent to the landlord. The Government have taken measures to try to sort that out and to make sure that tenants are given decent notice. Again, encouragement has been given to mortgage companies repossessing such homes to maintain the tenants and just collect the rent off them.
It is not clear why there has been such low take-up, and that points to the fact that when the Government introduce such a scheme, some monitoring would be a good idea, so that everybody is aware of how it is working. If few people need to use it, the public money allocated to it could be redirected to some other group that could make use of it, including, presumably, housing associations which could build more houses.
Mr. Clive Betts (Sheffield, Attercliffe) (Lab): We met the CML for a briefing this week, and several interesting points came out about the rescue scheme. First, it took some time for people who might benefit, but also local authorities to become aware of it. Certainly my own authority, Sheffield, to begin with denied any knowledge of the scheme or that it should be involved in it. That has taken a bit of time.
Secondly, people almost certainly look for alternatives. They see a rescue scheme as a last resort. They would prefer to defer their interest payments for a time and hopefully get back into work.
The CML also said that very few people have come out at the end of the rescue scheme, having completed it, but that there are now many more people in the pipeline being processed. That will take a bit of time as well.
Dr. Starkey: Absolutely. Again, that points to the need for the Government to keep a close eye on how a scheme is operating so that they can get early intelligence as to whether they need to step it up, or, as I said, step it down a bit and reallocate the money elsewhere.
I want briefly to touch on housing associations. We welcome many of the steps that have been taken to increase social housing grant money to housing associations. We were convinced again of the sense in the Government's decision to create the Homes and Communities Agency. That decision, and the fact that the agency is up and running, have been particularly helpful during the credit crunch. The HCA has been able to respond more flexibly and in a more timely manner than might have been possible if we had still had the two separate agencies, the Housing Corporation and English Partnerships. The HCA definitely was created at just the right time, and it has come into its own, so to speak.
Similarly, we welcome the proactive approach taken by the Tenant Services Authority to facilitate dialogue between housing associations and lenders. We were concerned by the evidence that we heard in December about the way in which some lenders seemed to take advantage of any slight change in housing association governance to increase the costs of borrowing.
One example was a housing association that had been attempting to reduce its costs by a sensible reorganisation, which it put off because, had the reorganisation gone ahead, it would have incurred enormously increased borrowing costs. The bank would have taken advantage of the change to alter the terms on which it lent to the housing association. We thought that such behaviour was particularly unhelpful.
We had concerns about the interaction between housing associations and their lenders, and we continue to have concerns about the ability of housing associations to deliver new housing under the model of finance that was in operation before the credit crunch.
I will conclude by saying that this report was intended to be a snapshot of the situation in December, and the follow-up report was to be a further snapshot. We are beginning to see some slight green shoots in the housing market, which, clearly, are welcome, but the scale of the turnaround that is required, if we are to get back on target to deliver the number of homes that are required to meet people's needs, is so great that we think that the Government need to continue to look at what more they can do to get the upsurge in house building back on track more quickly. They need to look not just at the amount of money that they are putting into rejuvenating house building but at whether there might be further measures that they need to take. They also need to think about the longer term: when we do come out of the recession, will there need to be a bit of a rethink overall about the models for financing new house building? In particular, do new ways need to be found to bring in private finance in addition to direct Government funding?
Mr. David Drew (Stroud) (Lab/Co-op): Will my hon. Friend give way?
Dr. Starkey: Let me finish this thought. It seems unlikely that the kind of profits that used to be available to private developers will be reinstated once we are out of the credit crunch.
Mr. Drew: Has the Committee yet had a look at trying to bring in pension fund finance? My hon. Friend knows that I am a great advocate of the community land trust model. We are looking seriously at whether we can persuade pension funds to get involved in that, because there are long-term returns and, obviously, they have not been too successful with some of their other investments. I wonder whether the Committee might look at that, if it has not already done so.
Dr. Starkey: We have not looked at that in particular, and it is unlikely that we will have a chance to look at it in the immediate future, but I am sure that the Minister has taken note of what my hon. Friend said. There needs to be innovative thinking across the board to explore all the possible ways forward, because-I reiterate this-the scale of the increase in house building that is required to meet housing need is so great that we must explore all possible avenues.
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