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Rightly or wrongly, it is a widely held belief that homeowning voters tend, on average, to be conservative voters. It is perhaps with this in mind, that has led Boris Johnson to propose an expansion of the government’s Right to Buy Scheme. The Prime Minister hopes to extend the Right to Buy Scheme to include housing association tenants alongside their council home counterparts.
The scheme will seek to support the two and a half million tenants currently renting their homes from housing associations in the UK. It will allow tenants to purchase their homes from housing associations at a substantial discount, giving them a meaningful route onto the property ladder.
An Introduction to the Right to Buy Scheme
Pioneered and popularised by Margaret Thatcher, the Right to Buy Scheme allows council tenants to buy their homes at a substantial discount from the free market value. Depending on the location, type of property, and how long someone has resided in the property, tenants could purchase their homes for 35% to 70% below the theoretical list price. Since Right to Buy was introduced in 1980, a total of 1,992,799 council homes have been sold via the scheme. However, the number of people using the scheme has fallen dramatically, with as little as 9,319 purchasing their homes during 2020/2021.
Boris Johnson hopes to expand the scheme to include housing association properties as well. Speaking about the scheme, Johnson said:
“I want us to deliver on the long-standing commitment, made by several Governments, to extend the Right to Buy to housing associations. There are still 1.6 million households living in council homes, but there are now 2.5million households whose homes belong to housing associations.
It’s time for change. Over the coming months, we will work with the sector to bring forward a new Right to Buy scheme. It will work for tenants, giving millions more the chance to own their home. It will work for taxpayers, responsibly capped at a level that is fully paid for and affordable within our existing spending plans and for one for one replacement for social housing that is sold.”
The idea to expand Right to Buy to include housing association properties is not a new one. It was first proposed by David Cameron back in 2015. A subsequent pilot scheme was launched in the West Midlands in 2018. Evidence from the pilot scheme suggests that it was unable to achieve a one-for-one replacement ratio, as Boris Johnson hopes. Financial and geographical constraints prevented an equal number of homes from being built and those that were built were not necessarily in similar locations to the ones sold.
Benefits & Mortgages to Support Right to Buy
Alongside an expansion of the Right to Buy Scheme, the Government is drawing up plans to support families on Universal Credit to get onto the property ladder. The plan will encourage lenders to consider Universal Credit benefits as a form of income, in the same way wages are. The hope is that some of the £30 billion in housing benefit that currently goes towards rent, can instead be put towards helping people secure and pay for mortgages.
Whilst the aim of the plan is commendable, its actual benefit may only be marginal. Many mortgage lenders already allow benefit claimants to count their benefits as an income toward their mortgage. Although the type and degree to which benefits count as income can vary by lender. In some cases, lenders choose to only allow a proportion of a person’s benefits to count towards their mortgage, say 50-70%.
The Likely Impact of an Extended Right to Buy Scheme
Whilst the schemes make for great headlines and talking points, their actual effectiveness may be limited. Michael Gove, Housing Minister, suggested that the number of housing association tenants eligible for Right to Buy may be limited to begin with, stating “we will cap the number of people who will be able to benefit from this initially, and then it will grow over time”. Gove also admitted that there is no additional funding included in the scheme, with the scheme’s applicability limited to a small number of initial pilot projects to begin with.
What is more, the plan to include Universal Credit payments as allowable income on mortgages may find its benefit heavily negated by increasing mortgage rates and the cost-of-living crisis. Lenders are increasingly taking into account higher mortgage rates and living costs when assessing the affordability of borrowers. The impact of more stringent affordability metrics will be felt more by Universal Credit claimants, who tend to live closer to the breadline. Aside from this, Universal Credit is only currently available to families with less than £16,000 in investments and savings, effectively limiting Universal Credit mortgage applicants to a maximum deposit of £16,000.
The Effect of Right to Buy on The Private Rental Sector
As they currently stand, the plans proposed by the Government look to be short of actual substance. The plans themselves may grab headlines, however, the details behind them suggest a far more limited impact on the housing market and on the private rental sector. That being said, if we were to assume that the plans prove to be successful and encourage a mass take-up of entry-level properties by low-income households, what would the repercussions be?
The plans, if successful, will help to further fuel the demand for housing. Increasing the amount people can borrow and the number of people eligible to borrow and purchase homes will help to drive up demand for properties. This will only lead to greater support for house prices, especially at the bottom end of the market. The Right-to-Rent scheme should not necessarily impact rents in the private sector, as it only applies to tenants already living in housing association accommodation. However, if the replacement ratio of social housing properties fails to meet its 1-1 target, the scheme may help to exacerbate the already 1 million persons plus waiting list for social housing. This could open up the space for landlords willing to let their properties at an affordable level to would-be social housing tenants.
