Extending home ownership: Government initiatives

Levels of home ownership

In 2019/20, 65% of households in England were homeowners. The rate of home ownership in England has declined from 71% in 2003 despite being the tenure of choice for most people. The 2014 British Social Attitudes survey found that, given a free choice, 86% would prefer to buy their own home rather than rent.

The decline in home ownership has been more pronounced in younger age groups: in 2003/04, 59% of households led by someone aged 25-34 were homeowners. This fell to 41% in 2019/20. Over the same period, the proportion of households led by a 35-44 year old fell from 74% to 56%.

Home ownership has become increasingly difficult to access, particularly for first-time buyers, as house price growth has outstripped the growth in wages. In 2019, the median house price in England was around 7.8 times higher than the median annual earnings of a full-time worker. The ratio has increased from around 5.1 in 2002. In London, the ratio in 2019 was considerably higher at 12.8.

The financial crash and the subsequent fall in house prices after the end of 2007 had only a limited impact on affordability for first-time buyers. Lenders have tightened their criteria for mortgage approvals and require buyers to have substantial deposits. Historically low interest rates have reduced the cost of mortgage borrowing in recent years, but the affordability of deposits remains a key barrier for first-time buyers.

Government initiatives to extend home ownership

This paper describes specific Government initiatives which have been developed to assist first-time buyers into home ownership and, in some cases, to help existing owners who are seeking to move.

Low-cost home ownership schemes have existed in various forms for many years. Commentators have generally supported interventions to support home ownership in challenging market conditions but emphasise the need for an overall increase in housing supply to prevent subsidised home ownership from adding to house price inflation. Concerns have also been raised about the effective targeting of such schemes and whether they provide value for money.

Initiatives to extend home ownership have been central to Conservative Governments’ housing policy since 2015. The focus on home ownership has been criticised by some for only benefitting those households that are already close to being able to buy their own home. Government funding for the Help to Buy: Equity Loan scheme is expected to total around £29 billion in cash terms by March 2023. The National Audit Office has highlighted that there is an opportunity cost to this funding, as it is unavailable for other housing schemes or priorities. Some commentators question whether the funding could be better spent assisting those with more pressing housing needs.

The current Government has said it wants to “turn Generation Rent into Generation Buy”. The following home ownership initiatives are already in place or being developed:

• Help to Buy: Equity Loan – from April 2021 first-time buyers can obtain an equity loan from the Government of up to 20% (or up to 40% in London) of the market value of an eligible new‑build property (subject to regional maximum property price caps). The equity loan is interest free for the first five years. The buyer must have a deposit worth at least 5% of the property’s value and secure a mortgage for the remaining amount. The scheme will run to March 2023.

• Help to Buy: Shared Ownership - the scheme enables home buyers to buy a share of a property and pay a subsidised rent on the remaining share. Purchasers can buy additional shares in the property as and when they can afford to do so, until they achieve full ownership.

• Rent to Buy - homes are let at an Intermediate Rent (which must not exceed 80% of the local market rent for an equivalent home) for a minimum of five years during which it is expected that tenants will save for the deposit to purchase their home.

• Mortgage Guarantee – from April 2021 the Government will provide a guarantee to lenders who offer 95% mortgages to people with a deposit of 5% on properties with a value of up to £600,000. The scheme is intended to be a temporary measure and will be available for new mortgages up to 31 December 2022.

• Lifetime ISA - The Government’s Lifetime ISA can help first-time buyers save up for a deposit for a house.

• First Homes - this scheme will enable local first-time buyers to purchase a new home with a discount of at least 30% under market value. The discount will be delivered through developer contributions and will be retained in perpetuity. The Government intends to pilot the scheme and has not yet announced a timetable for full implementation.

• Stamp duty land tax (SDLT) - over the past few years the Government has announced three reforms to SDLT charged on the sale of residential property, designed, to differing degrees, to encourage home ownership, particularly for first-time buyers.

• Purchase schemes for social housing tenants – many social housing tenants have a statutory Right to Buy or Right to Acquire the home in which they live at a discount. The Government has committed to extend the Right to Buy to assured housing association tenants on a non-statutory basis. It is also introducing a new Right to Shared Ownership - eligible tenants in new housing association properties delivered with Government grant will have an automatic right to buy a minimum 10% share of their home, with the ability to buy further shares over time.

The devolution of housing policy to Scotland, Wales and Northern Ireland is leading to increasingly diverse approaches, in particular with regards to the Right to Buy policy. The paper provides a brief overview of Government home ownership initiatives in these areas.