Examination of Witnesses (Questions 40-59)
RT HON
MARGARET BECKETT
MP, RICHARD MCCARTHY,
SIR ROBERT
KERSLAKE AND
PETER MARSH
16 DECEMBER 2008
Q40 Mr Betts: Is not the reality
that we are next year going to get fewer section 106 properties
provided and that that reduction is likely to be bigger than the
7,000 which is going to be provided by the half a billion pound
extra funding. That is the reality.
Mr McCarthy: It is not going to
be that number but it is going to impact on supply which we have
been quite open about and we are trying to maximise the benefits
we have of lower property values and lower land prices which are
now feeding through into the system and will ultimately impact
on the supply costs alongside the fact that the cross-subsidy
that we have referred to has substantially disappeared from the
delivery side.
Q41 Mr Betts: What I am trying to
get at is whether this half billion is the finality as far as
Government are concerned or whether it is still a work in progress
with further thought being given as to whether more needs to be
done to sort out what is a major problem.
Margaret Beckett: On the one hand
we have the £550 million that we brought forward already
for build but also of course we have the money which was made
available to ourselves to buy unsold stock which was suitable
for social housing. As I understand it, the latest figures from
November are that about £120 million of that money has been
disbursed and has purchased about 3,800 new units. We are not
saying this is enough by the way. What we are saying is that there
is a substantial amount ongoing and we are always in the market
for fresh offers of finance should any be made available.
Q42 Chairman: May I just pursue this
money bit? Is the £400 million which was the September housing
rescue money brought forward or extra money?
Margaret Beckett: Money brought
forward.
Mr McCarthy: Money brought forward.
Q43 Chairman: Brought forward from
what?
Mr McCarthy: From the social rented
programme into the social rented programme; from 2010-11 into
this and next financial year.
Q44 Chairman: And the extra £575
million?
Mr McCarthy: That was a mixture
of money brought forward, again from our 2010-11 programme; £150
million of that is money brought forward from social rented housing
into the social rented programme.
Margaret Beckett: A lot of it
is money brought forward.
Q45 Chairman: So the question, looking
over the long term, is, if you have brought it forward, how are
we going then, assuming things start looking up, to deliver what
we were supposed to be delivering in 2010-11 or 2011-12?
Margaret Beckett: You put your
finger on a very good question but you asked us, in answering
your question, to concentrate on the short term.
Q46 Chairman: What is the answer?
Margaret Beckett: The answer is
that at present we have brought forward a lot of funding which
we were anticipating using in 2010-11 and that issue will have
to be dealt with as we get nearer to that time.
Q47 Chairman: One point which was
made by our previous witnesses was that the new HCA has a lot
of money from EP and the Housing Corporation. Could you be bringing
forward some of that?
Sir Robert Kerslake: That in effect
is the money which is being referred to. The Housing Corporation's
principal programme was the national affordable housing programme
and that is what the Minister is referring to in terms of the
money brought forward.
Q48 Chairman: So there is no more
hiding around the place.
Sir Robert Kerslake: There is
no new money. Money in relation to HomeBuy Direct is money redirected,
but other than that it is money brought forward.
Q49 Emily Thornberry: Who is going
to deliver the social rented housing? Will you be relying primarily
on housing associations to do that? If so, we have already heard
evidence today that, given the sales-based cross-subsidy has pretty
much dried up and there is difficulty with private borrowing,
there seems to be some talk about changing the type of housing
which is being delivered, in terms of what rented housing housing
associations might be delivering to us. What I want to raise with
you is exactly what the definition of social rented housing might
be and might we be getting more intermediate housing for rented
housing which is going to end up with an element being bought.
There are lots of different elements in that question but that
is the nub of the evidence which was given before and raised a
number of concerns.
Margaret Beckett: May I begin
with the issue of whether they are mostly RSLs? As I think the
Committee are aware, we are in the throes of preparing to change
the regulations so that local authorities can benefit from new
build and also so that they can be eligible for and compete for
social housing grant. We are changing that balance but obviously
that will take some time and, as I am sure the Committee are well
aware, the amount of new build that local authorities have been
engaged in, which has mostly not been directly built but commissioned
by local authorities, has been quite small of recent years. It
is quite likely that we will go on looking to RSLs for most of
the build, if only because, the reason that that direction was
pursued in the first place, which was that if you can bring in
private sector money as well—and I take the point entirely
about sales, about section 106 and so on changing the picture
but it does not obliterate the picture completely—the likelihood
is that we will look to that model, partly because they have been
doing it and are geared up to do it, partly because it will bring
in other money and that gives you more for the amount of public
funding available and so on. With regard to changing type, I am
not quite sure what you are pursuing here but we are encouraging
RSLs to look more at the larger homes and in fact we have set
a target for more larger homes. With regard to the issue of changing
definition, people are looking, for example some RSLs are looking
at the moment, if they have unsold stock, at making them available
for intermediate rent so they get an income flow and if that is
part of a rent-to-buy scheme then in the longer term that can
be an option to purchase and the potential for that money to come
back to the RSLs. There is quite a lot going on.
Mr McCarthy: The intermediate
rent options are all within the funding envelope that we have
for our low-cost home ownership intermediate housing. The money
which is set aside for social rented housing remains focused on
social rented provision. What we are doing is to continue to develop
a range of intermediate options which reflects the changing market
conditions. There is no shift in policy or intent about how the
social rented programme is spent and it is really important that
we are very clear with the Committee.
Q50 Emily Thornberry: It is very
important that is made clear because the idea that there is a
series of different types of rented accommodation is worrying.
We need to have a guarantee that the proportion of social rented
housing will remain.
Margaret Beckett: Absolutely.
Mr McCarthy: Yes, it is very important.
Mr Marsh: The overall demand for
new housing has not changed. What has changed is people's ability
to pay for it and access mortgage finance for low-cost home ownership.
Therefore the discussion on increasing intermediate or rent-to-buy
housing as an alternative offer to LCHO seems to be a very sensible
way of ensuring we can still build new homes which are part of
mixed income communities. It is important to recognise that as
well as money the Minister has discussed in relation to government
funding there remain over the next 12 months plans in the housing
association sector to draw down £5.5 billion of private finance.
Of that £5.5 billion of private finance just over £5.2
billion is already in place in terms of lending agreements which
have been signed. There are issues about the price of money that
is being negotiated for additional funds and there are risks in
relation to covenant breaches which some associations face. The
overall picture of a sector that has substantial attraction to
the private finance market remains sound. It is our job to ensure,
working with the CML and Government and the HCA, that that is
a picture which remains the case for the next six months or next
12 months. This is a sector which has traditionally acted in a
counter-cyclical manner that can help meet housing need that otherwise
would not be met in an outright market situation.
Margaret Beckett: What this exchange
has exposed, which had not quite dawned on me when you asked your
series of questions, is that in what I have said to you about
the intermediate rented sector and so on, that is part of the
short-term response to the short-term difficulties we are facing.
There is no underlying policy change at all, which obviously is
what you were exploring and I did not realise that.
Q51 Emily Thornberry: My fault because
it was a very long question. It was raised with us earlier that
there are huge difficulties for first-time buyers but for those
who are wanting to part-own a suggestion has been made that here
we have all these banks that we have essentially nationalised,
are we not in a position to be able to nudge them in the direction
of ensuring that those people who want to part-own are actually
given that opportunity? There is a whole tranche of funding available,
to housing associations in particular, which may not be available
otherwise.
Margaret Beckett: We are in continued
discussion with lenders about a whole range of ways in which we
can improve the situation which exists at the present time. If
I may give you the example of the proposals which we announced
yesterday, we had far more bids than we anticipated for that HomeBuy
Direct programme, certainly 50% more and nearly getting on for
twice as much. To my simple mind this is actually quite an attractive
proposition for lenders because what is on offer is a scheme which
potentially means that they would be asked to mortgage only 70%
of property; up to 30% can be made available through other means.
Q52 Chairman: May we just clarify?
On the HomeBuy Direct, when you are talking about demand for the
product, which indeed we heard from a previous witness, are we
talking about the fact that developers have come forward in rather
greater numbers than you expected?
Margaret Beckett: Initially yes.
Q53 Chairman: Which is good news.
So that is what we are talking about. We are not talking about
lenders.
Margaret Beckett: No, not directly,
but, having said that, I keep hearing anecdotally throw-away remarks
from people in the sector about the considerable demand there
is for such products.
Q54 Chairman: From?
Margaret Beckett: From potential
purchasers.
Q55 Chairman: People. Right. So we
are still not talking about lenders, which I think was the point
Emily was focusing on.
Margaret Beckett: There are three
separate different sets of people. On the one hand are the developers
who come forward with bids. Then there are the people who might
want to access those bids. Thirdly there is the issue of whether
the lenders will lend.
Q56 Chairman: I think Emily was asking
about lenders and the suggestion which was made towards the end
of the previous session that, let us not beat about the bush,
Northern Rock should be instructed, nudged, pushed, into providing
mortgages on shared equity because there does appear to be some
evidence that there may be demand for shared equity, there may
be developers keen on HomeBuy Direct and the witnesses were very
positive about HomeBuy Direct. They were very positive about everything
the Government have suggested, the big thing is not enough, more
of it, but that banks are not keen on lending to individuals and
therefore they are not taking it up and Northern Rock could and
the Government are putting into it so why do they not make it?
Mr McCarthy: May I say something
about the lending community? First of all, please stay just for
a moment with HomeBuy Direct and the shared equity model where
the 30% in this case funded by the Government and by developers
is for a shared equity mortgage secured by a second charge. This
is important. It means that when individual prospective first-time
buyers approach their lenders they will be seeking a loan-to-value
ratio of 70%. They will be able to access a mortgage at that ratio
across the country from a range of mortgage providers. When we
have shared ownership products, which is the new build programme
through housing associations, the value of that programme is that
it gives a cheaper point of entry. You can buy an initial share
from 25% to 75% but the legal nature of that programme is that
the owner buys a proportion of the property and not the whole
property. Consequently they have been traditionally seeking mortgages
of up to 100% on the element that they were buying. So you had
reduced loans to value, much sharper loan-to-value ratio challenges.
We have seen lenders withdraw from that market and from offering
100% mortgages and we are talking to the CML and lenders about
what we can do to encourage them back into lending against shared
ownership products. The CML has confirmed that it will support
and lenders will support the shared equity products. We may have
to shift more of those into that structure but we are also looking
to encourage lenders across the piece, whether the Government
have an equity stake in them or not, to provide mortgages against
shared ownership leases where we actually think they have very
good security. There are separate issues which you have to address
to the Treasury about government instructions to banks where they
have an equity share. This is a very complicated area and they
are not going to be wildly keen if we start speculating about
what they should do there.
Margaret Beckett: I am instinctively
reluctant to give instructions where there is no need.
Q57 Chairman: This illustrates a
point that was made in the evidence in the previous session that
part of the trouble with shared ownership products in the past
has been they are unbelievably confusing. We certainly cannot
grasp them and my experience with my constituents is they cannot
very much either. To that extent we very much welcome the shift
to equity.
Margaret Beckett: I think that
there would be great merit in us trying to provide you with a
very short simple note about the variety of products available.
I have asked the Department to do it but I have not had chance
to cast my eye over it.
Q58 Chairman: Or even to reduce the
variety since it seems to be confusing people.
Margaret Beckett: I take that
point completely except that each of the options which is available
now has been put forward because of a perceived and identified
need.
Sir Robert Kerslake: Three points
really. The first is to say that the different products in part
reflect the different circumstances of individuals so some are
more accessible than others and whilst HomeBuy Direct is a successful
product it does not work for everybody, which is why we have alternatives.
The second point is just to reinforce Richard's point that the
banks' attitude to the different low cost home ownership products
in their widest sense varies between the products. They are more
comfortable with the equity loan model, the shared equity, than
they are with the shared ownership. We have challenged them on
that but nevertheless that is where they have come from. A final
point to make is that part of the reason why we went for the HomeBuy
Direct model was in response to what the industry was saying to
us and they in fact had been running their own schemes because
they found it worked in terms of getting potential purchasers.
Obviously as the credit crunch has bitten the ability to run their
own schemes entirely on their balance sheets has proved quite
challenging, hence the model we have now; in effect we helped
them and they put resources in as well. So there is some evidence
from their own track record of being able to use the shared equity
model to sell properties.
Q59 Mr Betts: From the previous witnesses
we got a very strong welcome for HomeBuy Direct because people
saw it as a simple model which everyone could understand and seemed
therefore to attract support. It would be helpful to have a note
but the most important thing is not that we understand it but
people out in the market understand it. I think very often the
people who are trying to lend do not at present. That just comes
to the final point that people do not understand. I hear what
Sir Robert says about the reluctance of some lenders but they
do not understand why the public puts billions of pounds into
these banks and then members of the public most in need are unable
to access something from them. A bit of pressure on the banks
as opposed to a bit of talking to them might be welcome. It might
be for the Chancellor to do that and for you to send a message
to him Minister.
Margaret Beckett: Yes, there is
no doubt that there is quite a lot of pressure being put on the
banks.
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