Chancellor urged to remove the 'artificial financial impediment' that is blocking homeownership

The lack of any tangible announcements in last Wednesday's budget relating to the housing market was branded as a 'missed opportunity' by many across the industry. In particular, according to the HFA, a small but vital change to the 2003 Finance Act was overlooked which could, if amended, increase future UK home ownership annually by 9%.

Related topics:  Property,  FTB,  budget,  homeownership
Property | Reporter
22nd March 2023
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"It would seem churlish for the Chancellor to ignore our plea for change in respect of genuine first time buyers being helped to buy and in numbers that would represent a significant uplift in UK homeownership"

Homeownership in Britain has fallen. Today, barely 65% of people own the home that they live in - down from a high of 73% in 2008. House prices as a ratio of income currently sits at 9x, the highest level since 1876, according to Schroders Bank. In London, the ratio is 11x. Within the G7, only Canada beats the UK as the country with the highest real house price growth in the last 50 years - a 319% increase.

Socially, economically and politically this is a huge issue, so much so that YouGov polling shows that housing is more important to the British public than education, defence, tax and even crime.

Barriers to homeownership are significant, with higher mortgage rates, lack of supply, rising prices, deposit requirements and taxation being the key obstacles.

Help for home buyers

The Government has attempted to assist home buyers in recent times with stamp duty reprieves, deposit assistance and schemes such as Help to Buy. These are laudable initiatives but often temporary (Help to Buy ends this month) and selective.

The government‘s own data on Help to Buy shows that whilst the initiative has assisted 328,000 homebuyers in its eight-year existence, this represents less than the equivalent of one year’s first-time buyer purchases.

A credible solution to the current homeownership crisis we face is by way of alternative homeownership financing. These solutions hail from the private sector, from institutional funding, and require no taxpayer subsidy or government guarantee. Various models, such as Gradual Homeownership or Rent to Own, have the ability to assist would-be buyers with the provision of a home that they part-rent and part-buy.

It’s estimated that alternative funding approaches could increase UK homeownership by 32,500 new homeowners each year, adding around 9% to the current annual rate of homeowners nationally.

The problem

However, these models are hampered as alternative funding type purchases are treated as ‘multiple purchases’ rather than a purchase by a first-time buyer. This means that each first-time buyer not only loses their first-time buyer stamp duty relief but each provider of alternative purchase methods is also required to pay a 3% Government surcharge.

This injustice alone is equivalent to an additional cost to each customer of almost £9000*plus the regular stamp duty cost on each purchase itself. Buyers are also unable to use their LISA (Lifetime Independent Savings Account) allowance towards a property deposit.

The solution

The solution is simply to realign these purchases as equivalent to a first-time purchase so removing this artificial financial impediment, by amending the definition of a ‘financial institution’ in section 73BA of the 2003 Finance Act (2003) to include these private sector providers. It was hoped that by way of the HFA’s efforts to communicate such to the Treasury of late, that this amendment would be made in the most recent Budget statement.

Today, the Homeownership Funding Association calls upon the Chancellor of the Exchequer to enact this change. Experts suggest that this would require secondary legislation only and may therefore be done as and when the Government wishes, outside of the primary legislation process.

Nigel Purves, Chairman of the Homeownership Funding Association, explains: “As home purchase has become more and more difficult in recent years the private sector has responded with innovation that now assists would-be buyers onto the property ladder and without recourse to the taxpayer.

"However, the growing gap in UK homeownership that our members’ efforts are solving is hampered by stamp duty legislation that has not yet caught up with our solution. It would seem churlish for the Chancellor to ignore our plea for change in respect of genuine first-time buyers being helped to buy and in numbers that would represent a significant uplift in UK homeownership.

"We, therefore, call on Jeremy Hunt MP to enter a direct dialogue with us so that we may encourage him to act in what is undoubtedly a win for him as it is for potential young homeowners and their families too.”

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