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Help to Buy Homes and the Property Ladder: Getting On and Staying On?

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18 December, 2013
Equity and Trusts, Jade Rigby, Planning Law
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(Image Source: http://www.geograph.org.uk/photo/82859)

– Jade Rigby (LLB Law, Newcastle University) j.k.rigby@newcastle.ac.uk

“For a man’s house is his castle, et domus sua cuique est tutissimum refugium [and each man’s home is his safest refuge].” – Sir Edward Coke

Of course, in today’s modern society, a homeowner does not have to be male, but Sir Coke does make a poignant point. As a society, we aim to own our own property – whether it be a cosy flat or a large house with a sprawling garden, the pressure is on for everyone to move out of the parental nest and create their own home. This seems to be a view which has survived the economic crash in 2008, but it has been affected by the spiralling financial crisis. There are over 2 million unemployed people in the UK, but the average house price between April and June 2013 was just under £250,000. Rising tension between the ideals of society and fiscal reality has led the Government to unveil the Help To Buy scheme this year in order to help people get on to the first rung of the property ladder.

So what exactly is the Government offering? Well, the scheme has four separate branches, which encompass different areas of the property market; Help to Buy equity loans, a shared ownership scheme, the NewBuy scheme, and the Help to Buy mortgage guarantee.  The mortgage guarantee is arguably the most controversial branch because it enables people to purchase a property with a deposit of just 5% of the purchase price. The Government provide a five-year interest free loan for up to 15% of the purchase price, which guarantees the mortgage with the lender. Interest is only charged on the loan after the sixth year. Traditionally, most mortgage lenders have asked for deposits between 10-20%, so the Help to Buy scheme is a radical step for many of those who have been unable to meet these requirements. To qualify for a mortgage guarantee, the home you want to buy must not be a second home, or be subject to shared ownership or shared equity, and you cannot plan to rent it out after purchase. Finally, the home must not sell for more than £600,000.

The mortgage guarantee does have many procedural advantages. Although there is a financial cap, the guarantee, unlike the NewBuy scheme, is not limited to particular new builds. This gives the public a wide choice of homes from across the property spectrum. For those hoping to climb further up the property ladder, this is also a great opportunity. Older builds often increase in value, whereas new builds may simply hold their price. Furthermore, potential candidates for the scheme can directly apply to some banks such as NatWest, RBS, Bank of Scotland, HSBC or Halifax. Approaching a mortgage lender can be an intimidating task, so it is particularly advantageous that popular banks are involved with the scheme because a large proportion of the public will already be familiar with their local branch. Significantly, this is a positive step forward in tough economic times for those who want to move without the hassle of saving up a larger deposit amount, or for people trying to get on the property ladder for the first time. There is a hope that the scheme will kick start the construction industry, and fill the lack of affordable homes.

The question is, is this the correct step for the Government to take? Granted, the scheme may be rooted in good intentions, but the practicalities of the mortgage guarantee are causes of concern. 95% mortgages are a huge financial burden in an unstable time. Although there has been a fall in unemployment rates recently, this does not mean that the financial world has time to fall back and relax. Borrowing more than what can a person can afford was an underlying cause of the financial crisis, and there may be an argument that a 95% mortgage is setting the vulnerable up for a fall. Although there will be meticulous checks before a mortgage guarantee is granted, the public perception of banking does not project a trustworthy image.  It may be a case of ‘only fools rush in’ as, at the limit, a 95% mortgage could form up to £570,000 worth of debt. This of course affects the accessibility of the mortgage guarantee; those with a poor credit score, who are arguably the most vulnerable to the property shortage, will be excluded. It is very concerning that the shortage of affordable homes is being met through mortgage schemes. This approach seems to skim over the real issues; inflation, job stability, and the housing shortage.

Indeed, the reaction to the Help to Buy mortgage guarantee has been very mixed. PricedOut – a campaign for affordable house prices – slams the scheme as ‘Help to Sell’ instead of Help to Buy. The low deposit rate fuels concerns that the scheme will create a new housing bubble, which will allow homeowners to sell at inflated rates. Rising house prices and overwhelming levels of debt may prove to discourage the public from participating. This would completely undermine the entire point of the scheme – to help the vulnerable get on, and stay on, the property ladder. Legal mortgages, it must be remembered, include equitable rights for the mortgagor. The equitable right to redeem, and the right to possess, for example, may be considered as powerful tools in the event of someone falling short on their mortgage repayments. The mortgagor always remains the true owner of the property because, historically, mortgages were used for exploitation and extortion. The mortgagee also has duties to fulfil; they must act in good faith, and to attain true market value for the property if a sale is on the cards. These obligations and rights provide a substantial stronghold against potential exploitation stemming from the Help to Buy scheme. The mortgage guarantee has not overridden these equitable rights in any way, so it is possible that fears surrounding the expansion of the scheme are largely overstated.

Ultimately, we will have to wait for further analysis. The Government will make available up to £12 billion of guarantees to support the scheme during its three-year life, so there is huge potential for many people to take their first tentative steps on to, or up, the property ladder. The doom and gloom of the economic crisis is lifting slightly at the end of 2013, but only time will tell how the scheme will fare amongst the wider public and the mortgage lenders.

 

The Changing Winds of Planning Law

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8 June, 2013
Catherine Caine, Environmental Law, Planning Law
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I(mage Source: http://www.flickr.com/photos/65193799@N00/34030128/)

– Catherine Caine (LLM Environmental Law and Policy, Newcastle University) c.a.caine@newcastle.ac.uk

Wind farms have often managed to divide the nation. Whilst some view wind turbines as a clean solution to our energy sourcing problems, others regard them as a blight on our countryside. Both sides have fought their arguments with passion and rigorous debate. However, one undeniable fact running alongside the wind farm debate is that our need to mitigate climate change cannot be ignored. By agreeing to increase the proportion of renewable energy in the UK’s total energy consumption figures to fifteen percent by 2020, the UK has already made a commitment within the European Commission to change for the future. However, recent news indicates that a change in planning guidance could compromise the UK’s ability to meet such targets.

Following on from the Coalition Government’s Localism Act 2011, the focus on planning law has shifted towards a decentralised system whereby local communities are afforded the opportunity to have their say in local planning decisions. Within this, a general power of competence was afforded to local authorities to allow them to take reasonable action needed for the benefit of the authority, relevant area and residents. It is anticipated that upcoming planning guidance will allow local authorities and residents to have a greater say on whether or not wind turbines should be erected within their area. The announcement has created somewhat of a double-edged sword whereby local communities are capable of overriding national energy requirements by refusing plans to construct wind farms; however, increased financial incentives will be imposed to encourage local communities to consider wind energy. The Energy Secretary, Edward Davey, has stated that the announcement “will ensure that communities see the windfall from hosting developments near to them, not just the wind farm”.

The expected planning guidance will “see a five-fold rise in the benefits paid by developers to communities hosting wind farms”, with subsidies provided to the local communities that decide to include wind farms in their planning decisions. The wind farm company RES in Meikle Carewe near Aberdeen has demonstrated how a similar scheme can be of benefit to the local community with local residents receiving £122 off of their annual electricity bills. Interest in the scheme has been expressed in Bryn Llywelyn, Wales, with three-quarters of residents showing an interest in taking part in the scheme offered by RES. By providing a financial incentive to local residents for the construction of wind farms, it is arguable that wind farm development will begin to see a shift in popularity.

However, as well as providing a financial incentive to the communities that do wish to utilise wind energy, the planning guidance will also allow communities that do not wish to reap the benefits of wind energy to refuse wind farm development in their area. Many views on this aspect of the proposed guidance suggest that the reforms could in fact allow a nation of ‘NIMBYs’ (“not in my back yard”) to kill our future of onshore wind farms. The argument presented by Mark Prisk, Housing Minister, clearly states that the need to meet the UK’s energy targets does not justify “the wrong development in the wrong location.” However, the extent to which a community should have the right to determine the energy infrastructure of the UK can be called into question. Indeed, if the local communities surrounding some of our largest power stations had the opportunity to refuse their development on the basis of a NIMBY attitude, the energy infrastructure that the UK enjoys today would look dramatically different. It is well understood that nobody wants to suffer an eyesore in their area. However, without the eyesore, there can be no energy generation.

The anticipated planning guidance will not only have an impact on a local scale. With the potential refusal from local communities to tolerate onshore wind farms, the UK’s targets within the European Commission could also be affected. However, with the Coalition Government opposing attempts to set new renewable energy targets, opting instead to focus on a new decarbonisation target for 2030, it has been argued that the Government is refusing to commit to renewable energy through its preference for the use of shale gas. The anticipated planning guidelines reflect this non-committed approach from the Government towards the use of renewable energy as a main source of the UK’s energy.

Whilst the effect that the upcoming planning guidance will have on future wind farm developments in the UK remains uncertain – the fact that wind farms divide the nation, and are likely to continue to do so, remains undisputable.