Memorandum by UNISON (CRED 25)
1. INTRODUCTION
UNISON welcomes the opportunity to respond to
the Committee's enquiry into the likely effectiveness of the measures
which the Department for Communities and Local Government is taking
to deal with the credit crunch, with particular reference to:
— achievement of the Government's housebuilding
targets, both for market and for social housing;
— the financial viability and ongoing
business of housing associations; and
— measures to help existing and prospective
homeowners affected by the credit crunch.
UNISON is the largest housing union in the UK,
with members working in a wide variety of positions in housing
departments in local authorities, ALMOs, RSLs and across the supported
housing sector. Our members are drawn from all tenures and, as
with the population at large, many of our members are home owners.
Along with others, we have campaigned for many years for a better
and more mixed affordable housing deal for those on low and modest
incomes.
In terms of headlines, UNISON believes that
there is a significant danger that the measures that were announced
at the beginning of September to address the impact of the credit
crunch on the housing market and social housing could be made
to look inappropriate and inadequate as a consequence of ever
worsening conditions. Of course, our members hope that the situation
does not deteriorate further. But, we do believe that the government
needs to have measures in place to deal with worsening conditions.
We note in particular that:
(i) Council for Mortgage Lenders forecast that
repossessions will be approximately 45,000 this year alone, whereas
the government's Mortgage Rescue package only offers help for
the 6,000 most vulnerable over two years.
In addition to being limited in terms of the
number of people it will help, the scheme is also shut off to
"those who have acted recklessly or irresponsibly",
those in negative equity or people who have taken a second charge
on their property. With some forecasts predicting that the number
of households facing negative equity will rise to two million
homes, and little detail out there about how reckless and irresponsible
are to be defined (will it include people who simply brought with
an off the shelf mortgage product when the market was at its peak?)
such qualifications seem arbitrary and ill thought out. At the
same time we note concerns that that there is a gap between what
has been announced (sale and rent back, shared ownership, or shared
equity with a housing association) and what housing associations
are able to offer now—on the ground.
(ii) Such has been the scale of the house price
boom and the reliance on two incomes to support purchases, the
extension of Income Support for Mortgage Interest claims to £175,000
looks like an inadequate measure for many parts of the country,
particularly during a period of rising unemployment.
This measure is only forecast to help 10,000
people. It won't, for example, help those who have relied upon
two salaries to buy a home, if one person loses their job. And
it won't help those who are facing repossession because of a second
charge on their property.
(iii) Those who sought to get a foot on the housing
ladder at the height of the boom are now increasingly vulnerable
to rises in interest rates as their fixed rates and discount rates
come to an end.
(iv) In the current climate the housing association
business model looks increasingly unsustainable, which has significant
consequences for the government's housing targets.
(v) Although councils are now entitled to bid
for grant from the additional money that the government has brought
forward from the affordable housing programme, it is not clear
that they will be able to bid on a level playing field.
We believe strongly that the aim of policy makers
in these uncertain times should not be to repair the current system
and return it to how it was before the sub-prime crisis first
emerged in 2007. Instead the aim should be to create a more stable
framework, in which there are more and better affordable options,
in which owning and renting are seen as equal tenures, there is
less of a sense that home ownership as the only game in town and
there is more independent advice to people looking for a home.
In terms of immediate measures, we believe that
the authorities need to take the following steps:
— a further cut in interest rates needs
to be introduced as a matter of urgency;
— the government must explore new business
models with the housing associations to ensure that they can adapt
to a new operating environment in which they can no longer rely
on cross subsidy from homes built for sale and part ownership.
This might, in the short term, entail the government taking equity
stakes in housing association developments or an increase in the
level of grant per unit;
— bring the borrowing rules used in
the UK into line with those used across the rest of the European
Union. The rest of Europe uses the General Government Financial
Deficit (GGFD) to measure levels of public borrowing. On this
measure, widely accepted by economists and markets, Britain's
debt level would be below the average of the core group of 15
European countries. Britain's current debt is well within the
60% target threshold of GGFD established under the Maastricht
Treaty;
— the sale and rent back market should
now be subject to statutory regulation, in line with the recent
recommendations of the Office of Fair Trading, but with full compensation
for those who have been victims of abuse; and
— the government should take immediate
steps to bolster its package of measures for homeowners affected
by the credit crunch. It should also explore, with the banks and
building societies, a short term moratorium on re-possessions,
as has been proposed by Barak Obama for the USA. Systems would
clearly need to be devised to prevent such a moratorium from resulting
in moral hazard. But, in the short term this could prevent a further
cycle of repossessions, house price falls and bad debts, if the
current situation deteriorated further. We note that since the
Committee announced its enquiry the Civil Justice Council has
issued its pre-action protocol. Whilst this is welcome, we note
that it does not fundamentally alter existing rights and obligations.
2. IMPLICATIONS
FOR HOUSEBUILDING
TARGETS
The Housing Green Paper "Homes for the
Future: More affordable; More sustainable" set ambitious
targets of three million new homes by 2020, two million by 2016.
To achieve this a new target of 240,000 additional homes a year
(compared to the prevailing rate of 185,000 new homes a year)
was set including 70,000 more affordable homes a year by 2010-11
of which 25,000 per annum would be shared ownership and 45,000
new social rented. New housing needs new infrastructure, roads,
community facilities, schools, primary and secondary healthcare
facilities and the plans envisaged that rising land values would
contribute to the cost of creating that infrastructure through
Section 106 agreements.
| Started |
| | | Completed
| | | |
| Private |
| | | Private
| | | |
| Sector | RSL
| Councils | All
| Sector | RSL |
Councils | All |
| 2007
Q1 | 39,170
| 4,060 | 50 | 43,270
| 38,450 | 6,010 | 90
| 44,540 |
| Q2 | 38,940 | 3,740
| 70 | 42,760 | 38,490
| 4,600 | 170 | 43,260
|
| Q3 | 38,630 | 4,000
| 30 | 42,660 | 33,950
| 4,680 | 60 | 38,680
|
| Q4 | 33,900 | 3,710
| 50 | 37,660 | 41,210
| 6,810 | 30 | 48,050
|
| 2008 | |
| | | |
| | |
| Q1 | 28,410 | 4,300
| 90 | 32,800 | 29,940
| 7,000 | 60 | 37,000
|
| Q2 | 28,380 | 5,840
| 130 | 34,350 | 31,560
| 5,620 | 140 | 37,320
|
Figures published by CLG show significant reductions in the
number of starts and completions in the private sector. At this
stage RSL starts appear to be "holding up" but the increase
envisaged in the Green Paper has not been achieved.
In this context it is vital that the government steps in.
The recent announcements from the government that it is to relax
its borrowing rules to fund investment is particularly welcome
in this respect. Borrowing to invest in housing in the current
context can be good for the millions in housing need and good
for jobs and skills. Because of multipliers, such investment will
also be good for the wider economy.
We believe that increased borrowing and investment can be
a combination of local authority borrowing and investment in council
housing and central government borrowing to boost the Affordable
Housing Programme.
One option being pursued by government involves buying unsold
stock from developers to rent as new social housing. UNISON urges
caution on this front. It is essential that new investment does
not dilute obligations in terms of design standards, environmental
objectives and the goal of achieving mixed and sustainable communities.
These may be extraordinary times, but government should not be
diverted from Aneurin Bevan's maxim that "we shall be judged
for a year or two by number of houses we build. We shall be judged
in 10 years time by the type of houses we build".
3. THE FINANCIAL
VIABILITY OF
HOUSING ASSOCIATIONS
The credit crunch has impacted on housing associations in
a number of ways.
— there are fewer lenders in the market; lending
policies have changed and margins have increased;
— the "credit crunch" and the accompanying
reduction in mortgage availability (some lenders now classify
shared ownership mortgages as sub-prime) has resulted in reduced
sales for associations developing properties for shared ownership
and low cost home ownership;
— some associations rely on "asset sales"
to cross subsidise new development and/or cover "core costs";
— housing associations are finding it increasingly
difficult to raise cash for building, privately and from their
own resources;
— most social landlords expect their counterparts
to be hit by large financial problems in the year ahead;
— a third of social landlords contacted in a survey
by Baker Tilly (and reported in Inside Housing) have not made
contingencies for dealing with the crisis; and
— six of England's major developers of social housing
relied on sales to stay in the black during 2007-08.
The business model upon which housing targets (since demoted
to ambitions) were premised is clearly now broken. In its place
the government need to give greater recognition to the role that
all providers can play in a mixed economy for social housing.
And we need innovative ways of delivering the extra grant needed
for each housing association home to make good the private finance
shortfall.
To such ends we believe that the government should review
and evaluate a range of options and proposals to restore the vitality
to the housing association sector including—a funding model
premised on higher government grant and no cross subsidy and/or
separation of future investment into two elements—grant
and equity (as suggested by the G15 housing associations).
The aim has to be to ensure that housing associations play
their full part, alongside other providers, in delivering the
affordable, decent homes that we still desperately need despite
the current difficulties in the housing market.
4. HELP FOR
HOME OWNERS
As suggested above, we have serious concerns that the scale
of the help on offer is not up to the challenge that a significant
number of homeowners face. And with many of the banks now in receipt
of government/tax payer support, the relationship between the
lender and the debtor has changed for a significant number of
mortgage holders.
We note with alarm the example referred to in the uncorrected
transcript of the Treasury Committee's evidence session on the
economics of the housing market (14 October). This refers to a
young working couple with two children coming to the end of a
two year deal with Northern Rock. Not only do they have to deal
with the subsequent increase in the mortgage repayments, but the
interest on an additional loan that the building society had pressed
on them increases from the mortgage rate to 15%.
We suggest that in this context the government need to be
innovative in their response and sensitive to the position that
many may find themselves in. Barack Obama's call for a three month
moratorium on repossessions in the USA is one response which warrants
careful examination for its potential in England and the wider
UK, if conditions deteriorate further.
In the short term the government needs to bolster the measures
that were announced on 2 September 2008. As the (uncorrected)
evidence from Richard McCarthy to the Committee on 13 October
made clear, the Government does not expect the Mortgage Rescue
Scheme to go live until January 2009 and the changes to ISMI do
not take effect until 1 April 2009.
Figures published by the Council for Mortgage Lenders show
that in the first 6 months of 2008 actual repossessions rose by
41% to 18,900. Given that increase UNISON believes the new ISMI
arrangements should be introduced earlier than 1 April 2009 (certainly
from 1 January 2009) and that further work be undertaken to assess
how ISMI might be adapted or other schemes devised to reflect
the needs of two-income households (where one loses their job
but both incomes are needed to meet the mortgage) and those who
face repossession because of a second charge on their homes.
We note that the FSA and the CML have codes of conduct regarding
treatment of people who are struggling with their mortgage -setting
out options and good practice in terms of extended loan periods,
change of mortgage type and capitalisation of debt. And that each
lender will develop their own policy accordingly. While UNISON
agrees that the decision on whether to accept these options must
rest with the borrower, the decision on whether to offer these
options must not be "optional" for the lender unless
it can be demonstrated to the satisfaction of the court that they
are solutions that are not practical given the individual circumstances
of the borrower.
We are also concerned that the proposals announced by the
Government on 2 September 2008 only apply to those to whom the
local authority would be likely to have a statutory duty under
the homelessness legislation. This excludes all childless couples
and single people under the age of 65 unless they are likely to
be regarded as "vulnerable" due to disability, mental
ill health etc. They also excludes tenants of landlords who default
on their mortgages who under the current legal framework may not
discover that they have lost their home until the day they are
evicted.
UNISON is concerned that new policies have not been developed
for these groups.
For example, shouldn't it be the case that the option of
moving from 100% ownership to either shared ownership or shared
equity also be available to couples or single people with incomes
of less than £60,000 (as it is for first time buyers)?
Tenants of landlords facing repossession face particular
difficulties. First they may have no notice that the property
may be repossessed and secondly there is no mechanism for the
property to be transferred to another landlord enabling the tenant
to remain.
Where a lender is intending to seek a possession order they
must first establish whether the property might be tenanted and
if it is give the tenant sufficient time to find alternative accommodation
or seek to transfer the property to an RSL.
Firm rules and procedures need to be established to ensure
that both the lender and the landlord act responsibly towards
the tenant.
October 2008
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