Housing Crisis - A Solution ? Yes, Just Maybe, For Part Of It

A local Labour Councillor Candidate in the Midlands, Thomas Heavey - who lost in the Elections by just 50 votes - has issued a Housing Policy for Public Consultation which stands a chance of being either partly adopted by Labour, or at least having a heavy influence on future policies.

And it's good. We like a lot of it. Whatever your Party, whatever your politics, a lot of this makes sense.

The full document is here, but here's some of the highlights.

These are only snippets, for the full reasoning and data, we encourage you to read the report.


Housing for the Many - Green Paper Response
A New Mortgage Deal for Millennials
Thomas Heavey

The Housing Ladder Problem

I have chosen to concentrate on the crisis surrounding young people and first time buyers and their difficulty getting a foot on the housing ladder ...

One of the solutions the Labour Party is offering, is to build high quality, truly affordable homes to enable young people and first time buyers take their first steps to home ownership.

This response represents new thinking, a fresh approach as to how this can be achieved.

... completely changing our thinking around the way mortgages are traditionally supplied.

The Up-side-down Mortgage

As a young person or first time buyer they can begin their mortgage by paying the interest only. This has the effect of making the cheapest time to buy a mortgage at the beginning as opposed to the end, hence effectively turning the way we purchase a home, up-side-down.

This flexibility, which is missing from our current mortgage system, will ensure that at times when life decides to alter the circumstances of the mortgagee, they have a family, re-enter education, their children marry, want a holiday or if disaster strikes and they lose their job.

Most young people now believe they will never own their own home. This could be a solution.


Calculating the Mortgage Fund

The amount the mortgagee can borrow is based on a maximum loan of 30% of their total disposable income.

By changing the formula by which mortgages are supplied and funded, we can greatly enhance the mortgagees spending power, without increasing their monthly payment.

£20bn a year is currently spent on housing benefit. Instead, this money could provide 133,333 mortgages and at even only 2% interest, would create a gross income stream for the tax payer of £400m per year.

The ‘Lock-in’

The mortgage can be used as a form of self-rent. With an interest being charged but the capital never having to be paid off.

The advantage to the mortgagee with this type of arrangement is that unlike renting, their payment never changes throughout the life of the mortgage. As the cost to them, is based on purchase price and not market value.

With the interest rate being set by the government and not by the markets, the same interest rate can be set for the lifetime of the mortgage, meaning that it will never increase providing security and stability.

London

In London as with other areas of the country, housing costs can be out of reach for young people.

If this scheme was available to them ... areas currently prohibited by today’s mortgage system, could be brought well within reach, giving people greater freedom of the locations in which they choose to live.

What does this mean for the lender?

The lender will ultimately be the tax payer and to ensure that they are getting a good deal, the mortgage could be equity based although this is not essential.

The home could become an investment opportunity for the mortgagee, by encouraging them to make payments off the capital and earn equity in the property. Both lowering their debt and increasing their equity share.
Essentially, for the local authority, this investment has created an income stream where they can expect their original investment, on average to be at least doubled.

Home Inheritance for Future Generations

A home should belong to the family, not just the individual.

... meaning that the percentage of disposable income needed to reside in the property has fallen from 30% to 6.15% and will continue to fall as long as salaries increase. Meaning that future generations continue to increase their wealth and security.

The advantages for the millennial home buyer:
  • Highly flexible repayment plan.
  • Mortgage can be based on 30% of disposable income meaning increased disposable income.
  • Greater spending power meaning that the mortgagee can afford a property almost 3x the value they can afford today under current mortgage allowances.
  • With enhanced quality of home comes an improved quality of life.
  • With deposit free mortgage availability, the young person can get instant access to the housing market.
  • Provides them with an investment opportunity (dependent on equity deal).
  • Creates a return/profit for the tax payer.
  • Creates an income stream for the local authority equivalent to the mortgage paid, less overheads.
  • Increases the value of every £ the tax payer spends.
  • Creates security in their homes by ending repossession.
  • Creates set payments for entire length of mortgage.
  • Creates low housing costs into and throughout retirement.
  • Creates greater choice of the available housing stock.
  • If housing price rises are under performing allows for return to interest only payments and investment can be sought elsewhere.
  • Overall costs greatly reduced in comparison to a lifetime of renting.
  • More disposable income created to enjoy life.
  • Less money spent on housing benefit.
  • More families living in their own homes.
  • Could be £100's of £1000's better off compared to renting.
Disadvantages
  • Mortgages can be lifelong.
  • Could potentially pay more for the property if a repayment plan isn’t in place.
  • May not be entitled to equity share.
  • Responsible for own repairs and maintenance. (Also an advantage for the lender).
Eligibility

The mortgagee must also be in full time employment, contracted employment, good history of self-employment. Zero hours contracted work will be illegible for qualification.

Funding Streams

Tax Payer
  • This creates a fantastic opportunity for the tax payer to increase the value of the tax £’s they spend.
Pension Schemes
  • An opportunity for pension schemes to double their investment and help to ensure their longevity of these vital schemes well into the future.
Private Investment
  • An opportunity for potential private investors to make a steady return on low-risk investment
New Central Investment Bank
  • Funding from the new Central Bank would create a return for the tax payer and provide the substantial capital needed to get ‘Generation Rent’ onto the housing ladder.
The Numbers

The numbers are there to be played with. There are many permutations of the direction they could take. How you play with them, depends entirely on what you want to achieve. This system it is a balance between profit and quality of life.

Private Rented Sector

A system of housing such as this will undoubtedly have effects on existing markets.

Providing interest only mortgages removes the rental element to this investment and therefore makes the private rented sector, a far less attractive investment opportunity. Therefore I would expect to see many homes currently used as rental investment, to be released into the housing market.

The Up-Side-Down Mortgage Could Seriously Improve Your Wealth

Today’s renters can pay a rent based on up to 80% of the market value of the property. If the rented property was valued at £150,000, then the rent would be based on a property valued of £120,000. This would give a rental cost of £509 per month.

... over the 50 year period, the mortgagee is £382,594 better off due to savings made from rent and equity earned on the property, than compared to a privately rented home.

Traditional Builders

Changing the way mortgages are supplied may influence the ways in which builders build. I believe that they will build the homes to match the available funding and to a price and standard required by their customers.  

Summary

This is just another option we could take in dealing with the housing crisis. In addition to making homes more affordable, we can also look at restructuring mortgages over longer terms, to bring the existing market, back within the reach of ordinary people.

We can provide the security people need so as they’ll never be faced with having their home repossessed, provide families a home they can call their own, end the scandal of homeless children and provide people with their very own investment opportunity.

The lower housing costs this will create will put more money into the pockets of ordinary people allowing them to live and enjoy a few more of the luxuries they want.

Young people and first time buyers can get instant access to the housing market. With no more years of saving for a mortgage the investment they make in themselves and their families can begin immediately.

For the tax payer, they will be spending far less on housing benefits and income support. And on top of this, the tax payer will also make a return on their investment, increasing the value of every pound spent, to use on the services we want.

© Thomas Heavey 2018