In June, this year, Boris Johnson introduced a new plan to facilitate homeownership for 2.5 million tenants renting their homes from housing associations. In this article, we will have a look at the Right to Buy scheme and the new developments the government is planning to make as well as criticisms directed at the applicability of the scheme.
Right to Buy (RTB)
The Right to Buy (RTB) is a scheme which gives eligible tenants statutory right to buy their property at a discount once a qualifying residence period has been met. Recently, the RTB scheme has helped many people residing in council houses to buy their homes at a discount of up to 70% depending on the length of their residency in that property. However, the scheme has been less generous for tenants of houses owned by housing associations. Extending the RTB scheme to housing associations will give millions the ability to buy their properties at the same discount they could get on council houses.
As a step towards this goal, the government is also planning to review mortgage finance for first-time buyers in order to provide access to low-cost, low-deposit finance such as 95% mortgages. Boris Johnson also pledged to turn ‘benefits to bricks'. So far, the rule was that tenants might be able to claim housing benefit to help pay their rent, but they could not claim this to help pay their mortgage costs. As a part of Right to Buy extension plans, the Government is also planning to give people who are working (and are on housing benefit) the choice to use their benefits towards a mortgage rather than paying it to the private landlord or housing associations. This plan is not only devised to enable people on the lowest incomes to buy a house but also to incentivise them to look for jobs and take steps to make their lives better. In other words, if a household has saved up the deposit, the government will back them with the same housing support that they would have used on their rent, to pay towards their mortgage instead.
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Concerns and Criticisms
Although the idea of facilitating homeownership, particularly for those on benefits is great, there are certain concerns in relation to the practicality of the scheme.
One of the criticisms to this plan was that according to the current system, if a person saves more than £6,000, the amount of Universal Credit they will receive will taper and it stops entirely when savings exceed £16,000. This means that the majority of people the government tries to support by this scheme may not have sufficient money for the deposit in order to qualify for a mortgage.
Additionally, it is argued that these extensions will worsen the housing crisis as it creates a huge demand without having the capacity to accommodate it due to the supply shortfall. Another concern is that it will sell off the few affordable social houses left while homelessness is becoming an increasing concern, and millions are still stuck in waiting lists. Having said that, the government promised to build replacement social homes per each one sold in order to avoid losing social homes.
Lastly, although the government can say that it will facilitate homeownership by opening up mortgages and changing policies, it will not happen unless lenders agree to do this. There is no guarantee that they will be onboard with this decision and as such, the government may need to consider all the details thoroughly.