This statement from Communities and Local Government sets out a package of measures designed to respond to current conditions in the housing market.
It is part of a series of Government actions to increase confidence and help ensure stability and fairness in the housing market. The ambitious and bold package announced on 2 September 2008, has been put together by Housing Minister Caroline Flint to build on our previous announcements in the spring and early summer. Our objectives are to:
On 2 September 2008 the Government announced a further series of measures (see News Release: Ensuring a fair housing market for all - 2 September 2008), aimed at increasing confidence, stability and fairness in the housing market by:
The Government will work with local authorities, the housebuilding industry, lenders and regional development agencies to make these schemes a success. This new package shows Government's continuing commitment to supporting the housing market. Responding to changing conditions and helping the housing market through turbulent times requires a partnership of Government, the house-building industry, Registered Social Landlords (RSLs), lenders, RDAs and local authorities.
It is right in the current climate to bring forward spending to maximise support of the housing market. The package of measures we set out below will be funded by bringing forward Communities and Local Government resources.
This package builds on previous announcements in May and July 2008. The Government believes that local authorities have a particularly important role to play at this time in meeting our housing needs. Last year we invited local authorities to apply for social housing grant to build new council-owned houses through special purpose vehicles, including Arms Length Management Organisations (ALMOs). We are also piloting a number of new Local Housing Companies which use local authority land to build new homes. The first four local authorities with ALMOs have now been offered social housing grant to build new council houses. Today we are further strengthening the role of local authorities and housing associations by providing them with new tools and resources to prevent homelessness and repossessions, and to deliver more housing.
Each element of the package is set out below.
The Government recognises the importance that many people attach to homeownership, and appreciates that the vast majority of people aspire to homeownership. Across government, we value and support these aspirations. And we are absolutely committed to making sure that everyone can find the housing that meets their needs.
Rising prosperity in this country over recent years, with high employment and low interest rates, has meant that more people have been able to realise their dreams of homeownership. Since 1997, there are one million more households who own their own home. One hundred and ten thousand have benefited from our shared ownership and shared equity programmes, enabling them to get a first foot on the property ladder.
Following a sustained period of growth and price rises, the housing market is experiencing significant challenges as a result of turbulence in the global financial markets. House prices have fallen, people are finding it harder to find a suitable mortgage, and housebuilders are experiencing more challenging business conditions. While most people's homes are worth far more than when they first bought them, mortgage rates are low by historical standards, and the long-term fundamentals of the economy remain sound, these are undoubtedly more difficult times in the housing market.
While the root of these problems is global in nature, this is a government committed to taking action, even radical action, to alleviate pressures in the domestic housing market. While we are realistic about what we can do, we feel we should do what we can to help people through difficulties and ensure that we get through this period in as fair a way as possible. In particular, we will continue to target our resources at those most in need of support - the vulnerable at risk of repossession, and first-time buyers.
In July we announced a series of measures, on which today's package builds, to help first-time buyers and to address current market conditions. This included new public private sector partnerships, new proposals for housing growth points, allocation of a £510m funding pot to reward councils who are planning and identifying land for future development, and new consumer information for families at risk from repossession. In addition we confirmed that more funding, beyond the £200m already allocated within the Affordable Housing Budget, could be made available to purchase high quality unsold stock from developers, in the right locations, for the right price. This will help deliver our demanding affordable housing targets, while also supporting house-builders.
The Housing Corporation will be announcing today a further £300m of allocations to provide 6,200 homes for rent and first-time buyers. This includes £47m towards the purchase of unsold stock. A total of £66m has now been allocated for the purchase of unsold stock to help support developers.
The package announced today also builds on ongoing work by Government, lenders and regulators to help ensure borrowers in financial difficulty are treated fairly.
The Government has already announced £10m for advice services; already funds or has offered funding for Court Desks to offer legal advice in 175 County Courts and allocated £50m to homelessness prevention work and support. The Government also provides targeted support through Support for Mortgage Interest (SMI).
The industry is currently reviewing its voluntary arrangements for supporting borrowers facing difficulties, including such steps as restructuring payments in the short term where appropriate; pro-actively identifying at-risk borrowers facing repayment problems, and strengthening links with debt advisers. The CML and FLA are preparing best practice guidance for lenders later this year. The Government welcomes this approach and wants to see all lenders meeting these standards.
It is crucial that lenders fulfil their commitments under statutory regulation and only move to repossession as a last resort. In its recently published review, the FSA has called for lenders to ensure that they are treating customers fairly in current market conditions.
The Government welcomes the Civil Justice Council's work on a pre-action protocol for mortgage possession cases, which will help to ensure that all reasonable steps are taken to avoid court proceedings.
First-time buyers are one of the groups hit hardest by the credit crunch. First-time buyers would usually benefit from falling prices, but a combination of the higher cost of borrowing, bigger deposit requirements and weakening consumer confidence means this has not happened.
In order to respond to these challenges, today we are announcing the creation of HomeBuy Direct, a new £300m programme in partnership with housebuilders designed to help up to 10,000 first-time buyers into affordable home ownership in new homes over the next two years. By providing a targeted boost to the housing market, HomeBuy Direct will also help to maintain the capacity of the housebuilding industry to respond when the market recovers. This in turn will support our longer-term housing supply aspirations.
HomeBuy Direct will provide qualifying first-time buyers with an equity loan of up to 30 per cent of market value, which they will be able to use to buy a new build property within specific schemes brought forward by developers through a competitive bidding process. Equity loans will be co-funded by Government and by the scheme developers on equal terms, and will be provided free of charge to the purchaser for the first five years (a charge will apply from the sixth year onwards). The eligibility criteria for applicants who wish to purchase under HomeBuy Direct will be the same as those already in place for the other HomeBuy products.
The launch of HomeBuy Direct builds on the measures we have already announced, including the launch of the Rent to HomeBuy pilots and the expansion of our popular Open Market HomeBuy product.
The current housing market difficulties also affect existing homeowners. Global market turbulence has led to an increase in repossessions. While the number of repossessions has risen recently, the proportion of mortgages affected remains small. CML data shows that the number of properties taken into possession in the first half of 2008 (18,900) equates to only 0.16 per cent of all mortgages, less than half the rate seen in the early 1990s (0.4 per cent in 1991 H2). However, the Government recognises that for those affected, being repossessed is a major life trauma. Repossessions change individuals' social status and identity; personal and family relationships; health and well being and quality of life. The Government is determined to help those who face these circumstances.
Today we are announcing a £200m mortgage rescue scheme, which will help up to 6,000 of the most vulnerable households facing repossession over the next two years. These vulnerable households will be spared homelessness and the considerable adverse health and social consequences from losing their home through repossession.
Such a package makes sense for taxpayers. This is a limited scheme which cannot help those who have borrowed excessively or acted recklessly. It is firmly targeted on those who can't pay rather than those who won't pay. Local authorities are critical partners in the mortgage rescue scheme. Councils are often the first port of call for households at risk of losing their home. All English councils have, by law, to give advice and information to any member of the public about homelessness and prevention of homelessness. Local authorities also have to provide assistance and accommodation to vulnerable households - with commanding emphasis on prevention of homelessness. Many councils have already shown great innovation and proven success in preventing homelessness. The availability of a rescue package will complement their work.
The scheme effectively adds (through equity shares) to our stock of low cost home ownership (LCHO) and social rented homes whilst saving the considerable Housing Benefit bills that are invariably associated with the repossession, and subsequent rehousing, of a vulnerable household.
Depending on their specific circumstances, eligible homeowners will be offered one of three products, following an assessment of their case by their local authority:
The Government recognises the concerns expressed by many over the market for private sale and rent back schemes. The OFT announced in May 2008 that it was launching a formal market study, and this is now underway. The OFT will consider a range of options to tackle problems and ensure that the market works well for homeowners. The Government looks forward to the OFT's findings and welcomes the fact that the OFT has stated that it will expedite its market study timetable so that it can report later this Autumn.
Our mortgage rescue scheme will help the most vulnerable households. A number of private sector organisations have proposed different schemes to help those facing difficulties. Over the autumn we will be working with the CML and private providers. We will be challenging them to develop privately-funded proposals so that mortgage rescue may be an option for other families in difficulty, perhaps because of payment shocks stemming from the end of fixed-rate terms.
The Government is also improving the support offered through the benefit system to homeowners with mortgages who lose their jobs, at a cost of £100m over the next two years. This will be the subject of a separate announcement by the Department of Work and Pensions.
Social rented housing is vitally important at this time - not only because of urgent unmet need, but also because of the contribution to the economy made by Government-supported construction. However, current market conditions are impacting upon housing providers' ability to deliver new affordable housing schemes. A reduction in developer contributions (S106 schemes) and reductions in the proceeds from low cost home ownership sales (including staircasing receipts from sales in previous years) are making it hard to maintain delivery within current efficiency targets.
The Government therefore agrees with those stakeholders who believe that social housing money should be spent now to meet these immediate economic and social needs and ensure that we deliver more homes this year and next, rather than wait up to three years for new social homes to be delivered. We are therefore bringing forward £400m from our 2010-11 affordable housing budget to be spent on new social housing this year and next. This could deliver up to 5,500 additional new social rented homes over the next 18 months.
At the same time, to respond to the current economic conditions in the housing sector, we have agreed with the Housing Corporation that they will apply limited flexibility to the efficiency targets that they are working within to achieve continued delivery of new housing schemes. Scheme bidding will continue to be undertaken within a competitive framework and we expect that this will continue to be a strong driver of value for money, with those bids which meet the Housing Corporation's assessment criteria and offering best value for money being prioritised for funding.
We have also opened up competition for Social Housing Grant to a wider range of organisations. Last year 28 ALMOs and other wholly-owned local authority special purpose vehicles pre-qualified to bid. The first four of these have now been awarded grant. We will now invite local authorities who continue to directly manage their stock to compete for grant on the same terms as those with special purpose vehicles.
Physical regeneration remains a priority for this Government, which has a strong track record in renewing some of our most deprived communities. Yet current market conditions have led to some regeneration schemes in deprived areas slowing down or stalling. This can limit the potential of these schemes to transform lives in deprived areas, support sustainable employment and delivery better homes and local environments. And delays schemes which have already begun can blight communities, just at the point when they are ready for renewal. This is a matter of real concern to this Government, and we are keen to take action where possible to alleviate these effects.
We are therefore announcing that, as part of the package, we will be working with RDAs and the HCA on possible interventions on projects that will deliver the most significant regeneration benefits. Each proposal will be assessed against a set of criteria to ensure it supports our key objectives. In order to secure this funding a scheme will have to show its effect on improving outcomes for local people and communities, along with a clear rationale for intervention. We will focus on those schemes that are critical to the wider regeneration of an area, with significant multiplier effects, where delivery is time critical, and where there is demand for the finished product. RDAs will also need to be convinced that a strong business case is in place for each scheme, and that each represents good value for money.
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