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RSLs crucial as government announces housing market kick-start

05 September 2008

With the housing market in crisis, Registered Social Landlords (RSLs) find themselves well placed to play a key role in delivering government measures to get it moving again.

It looks bleak. Potential home owners are unable to secure affordable mortgages, developers’ share prices are tumbling, and builders have been told to down tools.

The Bank of England reported that the number of mortgages approved for house purchases fell by 71% last month, to a record low of 33,000; while the UKs largest building society, the Nationwide, has reported the biggest drop in house prices since 1990. It said house prices in August 2008 fell 1.9%, and were now 10.5% lower than the same time last year.

With this in mind - and with an eye on the political scene - the Government has announced a £1b package of measures to help kick start the market and revive the economy.

And the RSL sector is going to be a key player in helping deliver those measures, which include:

• Stamp Duty - will not apply to purchases of residential property for £175,000 or less (the current threshold is £125,000). The bad news is that this threshold is for one year only, and The Royal Institution of Chartered Surveyors (RICS) believes 90% of transactions will be unaffected.
• A £200m mortgage rescue scheme to help 6,000 of the most vulnerable families avoid repossession. The Council of Mortgage Lenders estimates that up to 45,000 will lose their homes by the end of 2008. Local authorities will assess applications, and the applicant will be offered one of the following three options:
  • an RSL can buy a share to enable the purchaser to pay off some of their mortgage converting the property to a shared ownership lease
  • an RSL can provide an equity loan enabling mortgage payments to be reduce
  • a sale and rent-back scheme where the RSL clears the mortgage and rents back the property to the occupier
• Homebuy Direct - a £300m scheme intended to help up to 10,000 first time buyers purchase affordable homes over the next two years. The scheme works with buyers being offered an equity loan of up to the 30% of the value funded by the developer and the Government free of charge for five years. The scheme is open to those whose household income is below £60,000 per annum.
• Bringing forward £400m to deliver 5,500 more homes over the next 18 months.

Reaction from the industry has been mixed. RICS’ view is that the Government has not gone far enough to respond to the crisis, and that these measures will not have sufficient impact on those suffering as a result of the current economic downturn. In particular, it warns RSLs that the £400m boost may result in future budget restrictions, a repeat of what happened in the early 1990s when funds were similarly released.

But the National Housing Federation hailed the Government measures: “It is a charter for saving thousands of households from the nightmare of repossession.”
It is hoped that the measures will kick-start the housing economy, with RSLs being in a unique position to increase housing stock, as well as dispose of their new scheme housing.

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Ranjit Bassey

Associate
T: 08700 86 4007
I: +44 (0)121 625 4007
E: ranjit.bassey@shoosmiths.co.uk