First-time Home Buyers

Prayers – in the House of Commons at 12:00 am on 27th May 1988.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. David Hunt.]

Photo of Mr Hugo Summerson Mr Hugo Summerson , Walthamstow 9:36 am, 27th May 1988

I wanted to bring a brick with me into the Chamber this morning but I was told that that would not be permitted. That is unfortunate, as I wished to illustrate my speech with that brick. Thousands of bricks, cemented together, form one of the major aspirations of young people in Britain today. In the course of my remarks I shall give quite a long preamble on the history of housing and the phenomenon of first-time buying. I will make a few suggestions on how the first-time buyer might be helped.

Housing in Britain over the centuries has, until comparatively recently, been the preserve of the great landowners and freeholders who were responsible for putting up property in the cities and on the land. Going back to medieval times, most of the land was held by the great feudal lords or by small farmers. Several hundred years later on, houses were erected by small tradesmen by way of investment and were let out to agricultural workers for a few shillings a week.

Starting at the time of the industrial revolution, there was a great movement of people from the land into the cities. The housing in the cities was mainly for rent or to lease. Of course, most people's incomes then were such that they could not afford to buy. They had to rent or lease, and the cost of housing reflected that.

I want to dispel the myth of the idyllic country cottage. The sight of a cottage with a thatched roof and roses over the porch in a charming country village is a modern phenomenon. For the people who perhaps only 100 years ago had to live in such cottages, life must have been pretty grim. There were earth floors, no central heating, no insulation, no running water and the privy was outside at the bottom of the garden. How the wind must have whistled through the gaps around the windows in the winter.

Until comparatively recently, most housing was rented. Houses were erected to be rented or leased for a term of years, and that fact cannot be over-stressed. However, starting at about the time of the First World War, we had the first signs of rent control. Up till then, the vast majority of people had lived in rented accommodation, but the decline in the private rented sector began then and has gone on ever since.

Today, young people have both the inclination to become homeowners and, unfortunately, a lack of alternative. There are few other choices, so they simply have to become home buyers. This puts a great deal of stress on them, particularly when they are just starting out in work, and their salaries are not all that great. Therefore, although the inclination is there, the means may be lacking. Young people living with their families may want to move out, and this can generate stress and turmoil within the family home.

Another factor at work is divorce. It is greatly to be regretted that this is ever on the increase. About one in three marriages end in divorce, and this has a knock-on effect in that those households become divided and there are then two people seeking somewhere to live separately. The chances are that each person will be looking for a fairly small place as their means will be divided because of divorce. Therefore, many of them will be competing with the first-time buyer.

Yet another factor is mobility of population. This started with the coming of the motor car and with the increasing affluence ever since. Between the wars was the age of the country house weekend. Rich people would go off and stay with their rich friends in their country houses. Although that may be a good thing socially, it was not in terms of comfort. Many of those country houses were as poor in amenities as the agricultural workers' cottages, especially in the lack of heating. In the winter, many of them were freezing cold.

Nowadays, an increasingly affluent population has decided that it is a good thing to get out of London for the weekend, so people buy themselves a cottage somewhere in Dorset, Wiltshire, Berkshire, Gloucestershire or Hampshire—anywhere within fairly easy reach of London—and go off for their weekends there, which is nice for them. Unfortunately, it has a bad effect on local people. They do not have the purchasing power of buyers from London, so they cannot afford to buy. They may want to stay in their home areas, but if they cannot buy, they have to move. That has a shattering effect on local communities.

Unfortunately, the housing market is not perfect. It suffers from many distortions. One of the main ones is the planning system, starting with the first Town and Country Planning Act in 1947. You would not permit me, Mr. Deputy Speaker, to talk at great length about the planning system, but it means that in areas of great demand, planners will often refuse permission to build for various reasons, with the result that the supply is restricted. The increasing demand in an increasingly affluent society builds up, but if supplies are continually pinched, inevitably property prices will rise.

This is all very well if one is already on the housing ladder. It is marvellous if one already owns one's own home, no matter how humble it may be. One can sit back and chuckle and rub one's hands and think, "I paid only £50,000 for this cottage a couple of years ago, and now it is worth £80,000." All I can say is, "Bully for you." That is fine, but it has an effect on those at the bottom end of the market. They see one of the major aspirations slipping ever further away from them.

Another distortion in the market is mortgage interest tax relief, which costs the Treasury about £4·5 billion a year. It is not my purpose to attack this relief, which has done a great deal to help aspiring home owners, but on the other hand, if it did not exist, that much demand would have been taken out of the market and property prices might be lower. Moreover, the relief has now been restricted to one allowance per property. Again, I have no quarrel with that, but it also has an effect on the bottom end of the market. Two young people who may want to set up home together and who need all the help they can get no longer have that extra help available.

Such is the pressure on the housing market that some local authorities have to offer large capital sums to attract staff. They cannot fill vital posts because staff who want to come down from the midlands or the north cannot afford to buy in London. There have been instances of councils offering up to £75,000 towards buying as an inducement to staff to come to live in their areas.

Photo of Mr Ivor Stanbrook Mr Ivor Stanbrook , Orpington

Could not many of the social problems to which my hon. Friend has referred arise from housing shortages that could have been cured earlier if the Government had set about providing more accommodation for rent by means of a more drastic reform, and perhaps a repeal, of the Rent Acts? Rented accommodation should be available for people who otherwise are congested in the first-time buyers' market.

Photo of Mr Hugo Summerson Mr Hugo Summerson , Walthamstow

I am grateful to my hon. Friend, for that point and I agree with him. It is absolutely right and I hope to cover that matter in rather more detail.

I have spoken about councils having to offer large capital sums to staff and there is a similar phenomenon with companies. I have heard that some of the richer companies are now buying blocks of flats in London and the south-east to house their staff.

Another matter that impinges heavily on first-time buyers is the conveyancing system, which is uncertain, expensive and wearisome. It is high time that this most absurd system was looked into. It is immensely expensive and involves groups of people who are not exactly well known for speedy action—I almost said, speedy and efficient action. At least two lots of solicitors, estate agents, surveyors, local authorities and the land registry are involved, and the whole process can drag on and on. The worst feature of it is that at the end of the business, the buyer cannot be assured that he will get his property. He may find that after spending hundreds, if not thousands, of pounds on these incidental expenses, the chap from whom he is buying has decided to withdraw the property from the market or accept a higher offer.

The cost of conveyancing a mansion in Hampstead selling at £750,000 and the work involved in the process is exactly the same as that for a two-bedroomed house in Walthamstow selling at £70,000. This conveyancing system is a racket that has been going on for far too long. It is high time something was done about it, but unfortunately I cannot go into that in great detail.

I want to ram the point even further home by quoting a story that I heard about a chain of purchasers. We all know about those wretched chains. The man at the top end of the chain was selling a large house and buying an even larger house somewhere else, but he could not proceed because his purchaser could not proceed as he had not sold his property and so on, all the way down the line. Being quite bright, the man looked into the matter and discovered that the man at the end of the chain was trying to sell his small cottage in Wales for £18,000, but could not find a buyer. The man at the top end of the chain therefore bought the cottage at the bottom end of the chain and the whole series of transactions then went through. It is absurd that those chains should exist, and they only exist because of our ridiculous conveyancing system.

Yet another factor which is no help to the first-time buyer is that of so-called gentrification. Gentrification has its good effects. I imagine that possibly at no time in its history has so much of London been so carefully lived in and loved. Areas of London in which many people would not have been seen dead a few years ago are now highly popular and the streets are full of builders' skips. That is fine, but it means that property prices in those areas, which were once the cheaper areas, are also on the increase and once again, that has a bad effect on the first-time buyer.

Finally, in the course of this long preamble, I want to mention one or two figures. About 8·5 million borrowers benefit from mortgage interest tax relief, of whom about half a million receive multiple relief. Those half a million people will no longer enjoy that relief. The average dwelling in the south-east costs about £56,000 and the average mortgage is about £36,000. In the south-east, almost 70 per cent. of first-time buyers need a second income to step on to the home ownership ladder. Many of them raise the deposit from parents, friends and relatives, but it is becoming an increasingly difficult process and it worries me that young people are borrowing money at multiples of perhaps four times or even four and a half times their income to obtain a mortgage. Anyone borrowing on that sort of multiple is laying up trouble for himself. The vast majority of his disposable income will go on paying off the mortgage and an increase in interest rates could be completely disastrous.

Having raised a number of points, I shall now, in the true Conservative tradition, suggest some answers. I welcome the proposals in the Housing Bill for the expansion of the private rented sector. In my view, that is absolutely vital to help young people who want ultimately to become first-time buyers. There are many old images of the private rented sector. One such image is that of the old landlady, a fag drooping from the corner of her mouth and her feet clad in dirty slippers, shuffling around the house in a dirty old dress with her hair tied up in what looks like a dishcloth, standing outside the door on a Friday evening, breathing heavily, hammering away on the door and demanding her rent. That landlady was perhaps a figure of the 1950s, but she barely exists today.

Another bugbear is that of Rachmanism. The very sound of the word makes that concept sound even worse. One can really spit it out and make it sound horrible. Mr. Rachman was an extremely unpleasant creature, but it must be said that people like him can thrive only where the law has stepped in a misguided attempt to "protect" tenants. If the law did not give tenants security of tenure for life and, in some instances, for two or three generations, if it did not insist that the landlord spend large sums of money on maintaining the structure of the property while, on the other hand, decreeing that the rent he could charge should be limited to a ridiculous amount, there would be no incentive at all for landlords to try to get rid of their tenants.

There would then be no need for people like Mr. Rachman to go around with large dogs, frightening tenants and cutting off water and electricity supplies. If the landlord knew that he could strike a bargain with his tenants over such things as the length of the term and the amount of rent to be paid, he would have no need to do any of that because he would know that, at the end of the term, he could get his property back if he wished.

Our opponents will say that that will mean that rent levels will soar. The rent levels will rise, but, in a constituency such as mine, the rent levels will be at the rate that the local people can afford. It is absurd to say that west end rent levels will apply in a place such as Walthamstow.

The Government scheme called Homeloan to help first-time buyers has not proved to be a great success and I suggest that it should be scrapped in favour of another scheme. Although the Treasury might not like this alternative, I shall put it to my hon. Friend. At present, if someone buys a property for, say, £50,000, assuming that he pays interest at the rate of 10 per cent., he will pay £5,000 a year in interest, on which he will receive tax relief. Let us then take the case of someone who rents a property for £4,000 a year, which is perhaps all that he can afford. If he can save the difference of £1,000 a year and the Treasury then adds to that the amount of tax relief that he would have received if he had paid interest on a mortgage, he will accumulate a capital sum that will be of great use to him when his income eventually reaches the stage that he can put his foot on the first rung of the home-owning ladder.

Housing associations should be expanded. Their activities are excellent and they are well trusted by the public. They operate shared ownership schemes under which one buys 25 per cent. of the freehold of a property, pays rent on the remainder and then buys slices of the freehold when one's income permits. Some enlightened local authorities also operate such schemes. Those schemes are also useful to help local people in country towns because in some cases they ensure that they can never buy 100 per cent. of the freehold. They can perhaps buy 90 per cent. of the freehold and then move on. That means that the schemes will always be there for the use of local first-time buyers.

In conclusion I should like to point out that in 1986–87, there were 670,000 first-time buyers, the highest ever annual figure. I wish also to stress the importance of the first-time buyer. Like Atlas, he hears the world of housing on his shoulders.

Photo of Mrs Marion Roe Mrs Marion Roe , Broxbourne 9:58 am, 27th May 1988

I am grateful to my hon. Friend the Member for Walthamstow (Mr. Summerson) for giving us the opportunity to debate this important subject this morning. I welcome the constructive and thoughtful way in which he approached this subject which is close to the hearts of many people. He has clearly reflected on the problems facing those seeking to buy their first house and I am sure that none of us would disagree with his general theme of the importance of the first-time buyer.

My hon. Friend has quoted examples of young people, wanting to take their first step into home ownership, but finding it difficult to do so. I can assure hon. Members that I am well aware, from my own constituency surgeries, that it requires real commitment, hard saving and discipline, for a young couple to be able to buy their first home. I admire the commitment of all those who achieve their goal.

I want first to remind hon. Members of the Government's enormous success, since 1979, in spreading home ownership more widely. There are almost 3 million more owner-occupied homes today, than there were in May 1979. That is an increase of 25 per cent. Home ownership has reached its highest-ever levels—in England 66 per cent. In 1975, the figure was only 57 per cent.

Of course, part of that outstanding growth in home ownership has come about through our right to buy. More than 1,100,000 homes provided by the public sector have now been bought by the tenants who were living in them. The right to buy has extended home ownership to millions of people who would never before have dreamed of being able to own their own homes. They are a special class of first-time buyers: people, often into middle age, whose children were about to strike out on their own, and who perhaps had been able to put something aside for savings; people who otherwise would have had no choice but to remain council tenants for the rest of their lives. The popularity of the right to buy is such that even the Labour party has been forced to accept that it is now an established part of the housing scene.

Besides the people who have bought their council homes, there are another 2·9 million who have bought for the first time on the open market. Last year, there were some 515,000 such buyers, compared with 390,000 in 1979. So there are still huge numbers of first-time buyers who are finding the means of buying their first homes, despite all the stories that young people can no longer afford to buy.

I know, of course, that the picture varies across the country. First-time buyers in London, who are paying an average of £56,700 for a home, might well envy those in the northern region, where the average price is less than half as much.

I receive quite a number of letters from hon. Members whose constituents describe the difficulties which rising house prices are causing them or, often, their sons and daughters wishing to set up home. There is often an implicit request that the Government should "do something" about house price increases. All manner of people are blamed for rising prices: the estate agents, inevitably; the better-off outsider who can afford to move into the area; excessive pay in the City.

Letters sometimes urge intervention in the market. I have to remind the writers that home owners trade their homes in a pretty free market. What one can get for one's house depends on what someone else will pay. One may use advisers who will encourage one to expect a high price, but in the end, it is another family, not big business, the professions or the state, that decides whether the price is acceptable.

We reject suggestions that the Government should step in and interfere with deals freely negotiated between ordinary people. No Government have attempted to do that. I was intrigued to see a report, which came out in August 1945, of the interdepartmental committee on the selling price of houses. It was asked To consider, and report, about whether it is practical to control effectively the selling price of houses …". It came up with a scheme involving the district valuer valuing one's house. There were to be penalties for paying more than the permitted price.

It stated It may be considered desirable to empower local authorities to investigate cases brought to their notice and to institute proceedings". It concluded: Any form of contracting out of the scheme should be prohibited and Machinery could be provided whereby enforcement officers examine the certificates and declarations lodged and also the price lists or inventories relating to any furniture or fixtures sold".

That sounds positively Orwellian. Would anybody want that kind of regime? Not even the 1945 Labour Government were prepared to pursue that idea.

One remedy for rising house prices that is put to us is that more houses should be built. That suggestion, of course, comes more often from the housebuilders than from those who might live in the houses. There is obviously substance in the idea, but how much effect on prices would it really have? Each year, about 1,400,000 homes change hands, and about 1,200,000 of them are existing houses. So the builders' share of the whole market is relatively limited. A 50 per cent. increase in the number of new houses built would lead to less than a 10 per cent. increase in the number offered for sale. In most areas, it is simply not plausible that building more new houses would make the critical difference between present-day prices and prices which more people could afford.

Even if the new houses were to be built, what land would be used for them? The greatest pressures are in the areas where there is the strongest resistance to new development. Of course, we want to get more development back into inner-city sites. We want to prise out of local authorities' hands the tracts of vacant land which they still own, and which ought to be put to good use. Our Land Register powers are getting more land on to the market, but some of the land would have to come from green field sites, and enormous controversy is always involved in such decisions.

It is the job of the planning system to ensure an adequate supply of land for housing, while protecting the environment and, in particular, firmly maintaining the extensive green belts. That is one reason why we continue to press for development to be channelled towards our older towns and cities. This can both assist the process of urban regeneration and help conserve the best countryside. Over the past two years or so, some 46 per cent. of land for new housing throughout the country has been land which was previously developed or was vacant land in built-up areas. In the south-east, 55 per cent. of new housing is on such land. My hon. Friend referred to the fact that the planning system restricts supply. However, the planning system is simply responding to the wishes of the public, as I am sure my hon. Friend recognises.

It is simply not possible to accommodate all demands in the inner cities. Some new sites will still be needed to cater for legitimate housing requirements, including those of local people.

My hon. Friend also referred to the fact that tax relief on interest is available to would-be purchasers who take on mortgages. I am glad that he recognised that that tax relief assists first-time buyers. We are committed to retaining it.

Let me turn now to what I see as the more promising ways of helping first-time buyers. I mentioned earlier the need to get developable land out of the hands of local authorities and into the hands of the private sector, which can develop it. Since 1980, we have encouraged local authorities and new towns to sell vacant housing land, especially for housing which new buyers might afford. The results have been quite encouraging: 12,600 acres have been sold to developers, which is likely to be enough for about 150,000 houses.

We have particularly encouraged local authorities and new towns to enter into licence agreements with developers to provide housing aimed at those on the borderline of home ownership. By using a licence the developer does not have to pay for the land at the outset, so that saves interest charges, and the benefit can be passed on to the customer. In addition, the local authority usually has the right to put forward the names of potential buyers for the first few weeks that the property is offered for sale. The local authority can often put in the land at less than its market value, with the saving being passed on to the house buyer. More than 53,000 homes have been sold on that basis since 1980.

Another valuable way of helping first-time buyers is shared ownership. We cleared the way for that in 1980, and since then there have been some 43,000 shared ownership purchases. The majority of these schemes have been provided by housing associations; and I am sure that my hon. Friend, who advocated extending the role of housing associations, will welcome the initiatives on housing associations that we are taking in the Housing Bill.

Shared ownership is a means of part-owning, part-renting, a home. It can be particularly useful to first-time buyers who cannot afford to buy outright. Shared ownership schemes have allowed people to increase the share of their home, when they can afford it, and eventually to become full owners.

Shared ownership schemes have been run for some years by housing associations and local authorities. In the Housing and Planning Act 1986 we cleared the way for shared ownership to be offered by the private sector. There have been interesting developments at Milton Keynes on those lines. I very much hope that the private sector will do more in the future to expand the opportunities for shared ownership.

Here I would like to commend two of the building societies, the Woolwich Equitable, and Nationwide Anglia, for their contribution to helping first-time buyers through a shared equity scheme. The societies lend on terms which mean lower payments by the borrower, in return for giving up part of the growth in the value of the home they buy. That is a welcome addition to the alternatives available to first-time buyers, and I hope that their present schemes, being run on a limited scale, will prove successful and that more will follow.

My hon. Friend mentioned the cost and length of time involved in the conveyancing process, and he knows, this is a matter in which the Government have consistently taken an interest. We are naturally concerned to ensure that house buying is as quick, simple and easy as is practicable. I believe that we have made considerable progress in that area since we took office in 1979. Perhaps I could remind hon. Members of some of the improvements that have come about in the process of buying a house, which enable would-be first-time buyers to buy homes more quickly and at less cost.

My noble and learned Friend Lord Hailsham, who was then the Lord Chancellor, set up a committee on conveyancing in February 1984 which produced a report in January 1985 on conveyancing simplifications. Following that report, my noble and learned Friend asked the Law Commission to establish a conveyancing standing committee, with a continuing remit to seek and promote ways of improving the conveyancing system. The conveyancing standing committee has done some very useful work, which I believe will be of genuine help to people trying to buy their first house, who are daunted by the conveyancing process.

The committee has, for instance, produced useful proposals on pre-contract deposits. The idea is that the prospective purchaser and the prospective seller agree to put down deposits in advance of exchanging contracts on the property. If one party pulls out of the deal, he or she forfeits the original deposit.

The conveyancing standing committee also published a valuable report on the Scottish system of buying and selling property. Many first-time buyers suffer from the length of time that it takes from the point when their offer is accepted by the seller to the exchange of binding contracts. The difficulty is, of course, that the seller may pull out before contracts are exchanged, but after the purchaser has incurred search fees, solicitors' fees and survey costs.

Under the Scottish system, binding contracts are exchanged much earlier in the process. Many people have not realised that there is no reason in law why this system should not he adopted in England. If buyers and sellers want to use the Scottish system, they can do so. The value of the committee's report is that it brings out that fact and explains how conveyancers and their clients can use it. It should be said that there are advantages and disadvantages to the Scottish system. The reason for delaying the exchange of contracts in England is that there are advantages to both parties. However, I hope that those involved in the house-buying process—both the individuals and those advising them—will consider whether the Scottish system would be better suited to their needs and their concerns.

I believe that we are also seeing progress in the area of speeding up local authority searches, an area which has given much concern to hon. Members and to the public at large. For many people attempting to buy their first home, this is the stumbling block, especially in the competitive house market in London, the south-east and other areas with rapidly rising house prices. We must not forget that this is not a universal problem. Many local authorities can already respond quickly and efficiently. However, there are some authorities whose response time could be shorter. The solution which has often been recommended is to computerise the records which local authorities need to draw on, in responding to searches.

Until recently, that solution was very sensible in theory, but local authorities did not feel able to implement computerisation because of the costs. but this obstacle may now have been overcome. At least one private company is now offering a computerisation package to local authorities without any need for expenditure on the part of the local authority. The initial capital outlay is funded by a private investor, and is recouped by a premium on each search fee. I am sure that most house buyers who might otherwise face a critical delay would be prepared to pay something extra for the prospect of a speedy search.

We have, of course, ended the solicitors' monopoly on conveyancing by introducing competition from a new profession of licensed conveyancers. There is no doubt that, with the prospect of competition, conveyancing charges have fallen dramatically. some commentators have estimated a fall of about 30 per cent. Competition on conveyancing has also been enhanced by the relaxation of the rules on advertising by solicitors.

A further benefit to first-time buyers has been the staged reduction that we have made in the level of stamp duty. As hon. Members know, stamp duty often vies with solicitors' fees as the single most expensive administrative cost for the house buyer, especially in the south of the country. The Government have reduced stamp duty in successive Budgets. When we first came to office in 1979, it ranged between 1 and 2 per cent. for houses costing more than £20,000, on a sliding scale. Since 1984, there has been a common level for all those house purchases over £30,000.

Perhaps we take it for granted that finance for house purchase is much more readily available than in the past. The mortgage queues which blighted so many people's aspirations are now a thing of the past. Increased competition from banks and new specialist mortgage lenders has meant that those seeking a mortgage have a wider variety of sources and types of mortgage.

Lastly, I should like to say something about renting. My hon. Friend the Member for Walthamstow and my hon. Friend the Member for Orpington (Mr. Stanbrook) were quite right about the role which the private rented sector can play in meeting housing needs. A couple of years ago, some commentators suggested that some people felt they had to get into home ownership sooner than they would really have liked, simply because of the lack of decent rented housing. They were people who could afford to pay quite a lot more than fair rents, but perhaps not as much as a mortgage would have cost.

What we need for these people is a revival by the private sector of the rented housing market. That will give them a genuine choice between owning and renting. The measures in the Housing Bill are designed to make private renting a real possibility again, by sweeping away rent controls for new lettings. Landlords will have the opportunities to offer a decent product at a reasonable price.