Budget 2015: what does it deliver for renters?

In short, not much. It took 40 minutes for the first mention of housing, behind an announcement of £1million to celebrate the 600 year anniversary of the Battle of Agincourt no less. As well as expected announcements on funding for a London land commission to address ‘the acute housing crisis’ and  the 20 housing zones due to be launched to boost house building, there was a surprise announcement of a ‘Help to Buy ISA’.

This will give those people saving for a deposit for their first home, a 25% bonus to add to their deposit savings. For every £200 put into this ISA each month, the Government will contribute £50 – up to a maximum of £3,000 in total (paid on purchase of your home).  If you want to receive the maximum bonus of £3,000 from the Government, it will take you 5 or more years to save up the required £12,000, depending on the consistency of your contributions, as you are only allowed to put a maximum of £200 a month (£2400 a year). These ISA accounts can also only be opened in the next 4 years. 

On closer examination of the detail, it doesn’t add up. The Treasury have estimated that this will cost £2.1 billion over the next 5 years.  The costs of this policy have only been worked out for the next 5 years – it is assumed that some buyers will want to take advantage of this each year, rather than wait until the end of 5 years, even though they will only be entitled to a smaller ‘bonus’. Therefore the costs will be more overall, as the savings will still continue once the scheme has closed.

Those who subscribe to this scheme are also limited to houses priced up to £250,000 outside of London and £450,000 in London. There are already very few affordable homes being built at this price in London; if house prices keep rising over the next 5 years at similar rates to the last 5 years, there will be almost no homes that those who have invested in this scheme can purchase.

The money that this policy will cost the taxpayers would be better spent on building social and council homes. It is the same message that has been repeated before - money spent on bricks and mortar is much more beneficial in the long run than spending on demand stimulation which can only increase house prices.

For the £2.1 billion cost of this policy, 25,000 council homes could be built. Based on current figures of the costs of rents – this would save £3.6 million a year on our housing benefit bill with the added advantage of pushing house prices down[1]. This would mean more people could get onto the housing ladder without the need for help and rents would go down as demand reduced (in turn, reducing the housing benefit bill, a positive circle instead of the vicious one we have now!). Admittedly £3.6million on the face of it doesn’t sound that impressive; it does pay for more than 3 celebrations of Agincourt though, something I’m sure we all appreciate. And, more importantly, it would be providing affordable homes for families that need them whilst reducing house prices: a wider benefit to society, rather than a gimmicky, flawed policy aimed to win over young, struggling voters. 



[1] The average weekly local authority rent is £79.89 a week compared to £107.59 a week for the average LHA private rent – we have calculated the difference in spend over a year and multiplied by this by 25,000 (the number homes that could be built with the £2.1bn instead) https://www.gov.uk/government/statistical-data-sets/live-tables-on-rents-lettings-and-tenancies

 

Showing 1 reaction

Please check your e-mail for a link to activate your account.
  • commented 2015-03-27 11:33:30 +0000
    The question I keep repeating is “Help to buy” WHAT ?
    What exactly is the worth of £450,000 in terms of properties in London ? Not much, really. And we can only assume the property prices are going higher in the next 5 years, as we already know the government committed to build lesser than required number of properties to meet current demands (I won’t even talk about the demands of 2020…).
    Also, how much exactly is worth £3000 compared to a £450,000 price – 0.67%. Doesn’t really seem significant, much less to say 450,000 is insignificant by itself when viewed against the property market…