Turning more of Generation Rent into Generation Buy

THE GOVERNMENT ANNOUNCED plans to extend the Right to Buy scheme to housing association homes, giving more than 2.5 million tenants the right to buy their home. The announcement was part of a package of measures announced on 9 June to make it easier for first-time buyers to step onto the housing ladder.

Other changes include allowing people to put housing benefit towards mortgage repayments, while money saved in a Lifetime Individual Savings Account (LISA) for a housing deposit will be excluded from benefits calculations. Former Prime Minister Boris Johnson also announced plans for an independent review of the mortgage market to improve access to low-cost mortgages for first-time buyers with 5% deposits.

FIRST-TIME BUYER MORTGAGE
Mr Johnson pointed out that more than 50% of people who currently rent could afford to make monthly mortgage repayments, but strict mortgage lending restrictions and high deposit requirements meant only 6% could access a typical first-time buyer mortgage. He said, ‘We have a ludicrous situation whereby plenty of younger people could afford to make monthly mortgage payments – they’re earning enough to cover astronomical rent bills – but the ever-spiralling price of a house or flat has so inflated deposit requirements that saving even just 10% is a wholly unrealistic proposition for them. We want it to be easier to get a mortgage.’

WHY IS THIS HAPPENING?
Under current rules, people who live in council houses are able to buy their home at a discount of up to 70% of its market value, depending on how long they have lived there. But the scheme is less generous for those who rent from a housing association. The government now wants to change this. It is also looking to remove some of the barriers that prevent people who could afford a mortgage from taking one out, as well as addressing issues in the benefits system that prevent people from becoming homeowners.

WHAT YOU NEED TO KNOW

• The extension of the Right to Buy scheme to housing association homes gives more than 2.5 million tenants the right to buy their home.
• People will also be able to put housing benefit towards a mortgage, while money saved in a Lifetime ISA towards a housing deposit will be excluded from benefits calculations.
• Furthermore, a review of the mortgage market will be carried out to improve access to low-cost mortgages for first-time buyers with small deposits.

WHO DOES IT AFFECT?
The measures are good news for aspiring first-time buyers as they increase their chances of becoming homeowners. More than two million people have purchased their council home through Right to Buy since it was first launched in the 1980s. Meanwhile, it has long been a complaint of first-time buyers that mortgage repayments are considered to be unaffordable for them by lenders, even though they currently pay more each month in rent.

WHAT ARE THE DETAILS?
For details on how Right to Buy operates for housing association renters, visit the government website. The government has committed to building new social housing homes to replace each one that is sold, to ensure the number of homes available to rent does not reduce.

The government also hopes to help more people to become homeowners by letting them use housing benefit towards mortgage repayments. Around 1.5 million people who are in work receive housing benefit but at present it can only be used to pay rent to housing associations or private landlords.

The government plans to exempt money saved in Lifetime ISAs from this assessment, enabling recipients to save for a deposit without losing any benefits. People can save up to £4,000 a year in a Lifetime ISA, to which the government then adds a 25% bonus – up to a maximum of £1,000 annually – for free. The money must be used either to purchase a first home or for retirement.

Don’t forget, our professional, friendly advisers are on hand to support you and can help you explore all of your options.

Source data:
[1] https://www.gov.uk/government/news/right-to-buy-extension-to-make-homeownership-possible-for-millions-more-people