Mortgages: Eligibility — [Mr Philip Hollobone in the Chair]

Part of the debate – in Westminster Hall at 4:47 pm on 23rd October 2017.

Alert me about debates like this

Photo of Jim Fitzpatrick Jim Fitzpatrick Labour, Poplar and Limehouse 4:47 pm, 23rd October 2017

I am pleased to see you in the Chair, Mr Hollobone; it is a pleasure to serve under you, as ever. I congratulate Paul Scully on securing this debate on behalf of the Petitions Committee. Those I have spoken to in the housing sector welcome his support, and the petitioners’ suggestion of including rental history in the criteria for securing a mortgage is clear common sense. They will be pleased to hear the Front-Bench speakers, especially my hon. Friend Jonathan Reynolds and the Economic Secretary to the Treasury, express their views and hopefully their support for the petition.

The hon. Member for Sutton and Cheam commented anecdotally that one of the worst-feared phrases is:

“I’m from the Government, and I’m here to help.”

When I was in the Government Whips Office from 2001 to 2004, it was even more welcome when I said to colleagues, “I’m from the Whips Office, and I’m here to help.” However, that is a different issue entirely.

I will speak briefly about a less obvious anomaly involved in mortgage eligibility and problems: the policy of doubling ground rents that many developers impose on leaseholders. Many thousands of people then have difficulty selling their property, because mortgage lenders draw red lines around it, locking it in so that they cannot move along the housing ladder.

There have been a number of announcements recently from the Department for Communities and Local Government. I recognise that that is not the Economic Secretary’s Department, but I am sure that DCLG checks with him before making any announcements, because if the Treasury does not green-light something, it does not get past the starting block. I am keen to hear his comments, as I will explain later, on DCLG’s announcements. They have included the housing White Paper, the leasehold review and the eight-week consultation, the call for evidence last week and statements on Grenfell. Over the weekend, the Secretary of State for Communities and Local Government also announced policies on house building, particularly in the social housing and rented housing sectors.

Ground rent used to be a peppercorn—a token element of house buying. Before the 2008 crash, ground rents rose roughly with the RPI, if at all. After the crash, developers introduced the policy for ground rents to double every 10 years, which effectively led to an 8% to 10% annual increase on ground rents and real problems for sellers and buyers.

Some developers—the good ones—did not go down that road. In the past year, Taylor Wimpey has announced that it will end the doubling of ground rents and return to the RPI. It has set up a £130 million fund to put right the unfairness that was introduced into the system and fix the problem. It has a way to go, but at least it has identified and accepted that the policy is anomalous and is looking to repair the unfairness. Some developers, such as Countryside, were still selling flats on that basis in London as recently as this spring.

Consequently, mortgage lenders are drawing red lines against such properties because they are not a good risk. They refuse to issue mortgages against them, which strands leaseholders. Leaseholders cannot move up the housing ladder even if they are getting older and have greater income or if their family is growing and they want to move to a bigger property. The Leasehold Knowledge Partnership, which advises the all-party group on leasehold and commonhold reform, estimates that more than 100,000 properties are in that category and thought to be unsellable; Nationwide, one of the biggest lenders in the country, is on record as agreeing to that estimate. One of my parliamentary team has such a property, a flat in south London. In the last 25 years of his lease, the ground rent on his flat will be £180,000 a year. That is a long way in the future, admittedly, but it is an indication of the eye-watering figures that make lenders really scared to disclose the eventual costs to prospective buyers.

It is clear that the Government recognise that there are real problems at this end of the housing sector. Their consultation on leasehold reform was specifically about ground rents doubling and homes for sale on a leasehold basis. They have said that they will move against both, but they will take evidence in the meantime. A number of welcome initiatives have been announced to address many of the anomalies, including yesterday’s announcement by the Secretary of State on homes in the social rented sector.

Sir Peter Bottomley, my co-chair on the APPG, has continually raised many of the outstanding problems of leasehold for a number of years. It is encouraging that the Government are moving on a number of those. Leasehold reform is long overdue. The Conservative Government tried to fix leasehold in 1993, and the Labour Government tried to fix it with the Commonhold and Leasehold Reform Act 2002. Neither were successful. It is more than time for movement now. Although the Minister is not directly involved in DCLG’s programme, I would welcome an indication of whether mortgage eligibility is on the Treasury’s radar and whether the Treasury, either separately or in partnership with DCLG, plans to deal with the problem and support DCLG’s proposed solutions.

The ambition of all parties is to support home ownership, but because of these anomalies, that is further away for many people than ever. I look forward to hearing Front-Benchers’ responses to points raised in the debate. From my point of view, leasehold reform is part of mortgage eligibility.