By Martin Wicks

Angela Rayner has announced Labour’s “Freedom to Buy” policy. This is a mortgage guarantee to encourage mortgage providers to offer low deposits; a revamped version of the Tories’ Mortgage Guarantee Scheme- see addendum below. We haven’t seen any detail (including costs) but the guarantee is to the mortgage provider, should the buyer be unable to continue paying.

However, it is only on offer to 80,000 over five years. According to the Office for National Statistics, there were 6.7 million people aged 15-34 living with their parents in 2022. As Polly Neate of Shelter has said, another home ownership scheme “that helps only a small minority and ignores the core of the problem isn’t going to cut it”.

“Many people in this country are closer to homelessness than home ownership. If political parties are serious about giving people ‘security’ in their homes, there’s only one way to do it. With 1.3 million households stuck on social housing waiting lists and the country haemorrhaging social homes through sales and demolitions – we need to build 90,000 social homes a year with rents tied to local incomes. And politicians must get on with renting reform – no-fault evictions must be abolished, and renting made safer, secure and more affordable.”

This is right. A largescale building/acquisitions programme of social rent housing will provide secure and more affordable homes for people imprisoned in the private sector: in the case of council housing the ‘secure tenancy’. Taking hundreds of thousands of people out of the market, it would be likely to drag down prices for those who want to buy.

Unfortunately, Shadow Housing Minister Matthew Pennycook, has said that a Labour government will not increase the parsimonious amount of grant currently available under the Tories. Interviewed recently he talked of “sweating grants” – in other words getting more building out of the existing grants. But what is needed is more grant. Matthew is saying there is no more money because of Rachel Reeves’ self-imposed economic straitjacket. “We have no more money” is only true if you leave the regressive taxation system in place. But there are plenty of ways to raise the funding needed.

For instance, at the 2021 Labour conference, none other than Rachel Reeves said that Labour would equalise capital gains tax with income tax. In her speech she said:

“How can it be right that the police constable on £27,000 a year should be taxed at 32p in the pound but someone making many times more from buying and selling stocks and shares should pay just 20p in the pound? That will not stand under Labour.”

Alas, it now will stand under Labour because equalising capital gains tax has been abandoned.

In his comments in relation to ‘freedom to buy’ Keir Starmer said that “a generation face becoming renters for life”. The implication is that renting is a lesser thing than home ownership. Council tenants are often happy becoming “renters for life” because it offers them security of tenure and rent far lower than the private sector. There is nothing wrong with being a “renter for life” so long as it’s not in the expensive and often poor-quality private sector. In any case, home ownership does not offer security. It can become a burden which becomes unmanageable.

With 1.3 million households on housing waiting lists and 112,000 households in temporary accommodation, including 145,000 children, what is required is a focus on social rent homes.

To shift the Labour leadership, it will be necessary to build the widest possible campaign to pressure the government to provide the funding needed to build the 90,000-plus social rent homes that are necessary to begin to resolve the housing crisis. Without that, millions of people will remain imprisoned in the expensive and insecure private rented sector.

Addendum: Mortgage Guarantee Scheme

“The mortgage guarantee scheme is designed to increase the appetite of mortgage lenders for high loan-to-value lending to creditworthy customers. It will provide lenders with the option to purchase a government guarantee that compensates them for a portion of their losses in the event of foreclosure. The government will charge a commercial fee for the provision of this guarantee.

The government will provide lenders with the option to purchase a guarantee on the top-slice of the mortgage. In other words, the government will compensate the mortgage lender for a portion of the net losses suffered in the event of repossession. The guarantee will apply down to 80 per cent of the purchase value of the guaranteed property.

Lenders will also take a 5 per cent share of net losses above this 80 per cent threshold. This will help to ensure that lenders are not incentivised to originate poor quality loans.

The guarantee will be valid for up to seven years after the mortgage is originated; evidence shows that loans are unlikely to default after such a period has elapsed. Furthermore, a mortgage taken out on a repayment basis would normally have paid down sufficient capital after this time so that the borrower’s equity stake would be close to or greater than 20 per cent, meaning that the guarantee would effectively no longer offer any protection.

The scheme is designed to help credit-worthy households struggling to save for the higher mortgage deposits required by lenders in the current environment. For this reason, a mortgage eligible for a guarantee under the scheme will need to:

• be a residential mortgage (not second homes) and not buy-to-let
• be taken out by an individual or individuals rather than an incorporated company
• be on a property in the UK with purchase value of £600,000 or less
• have a loan-to-value of between 91 per cent and 95 per cent
• be originated between the dates specified by the scheme
• be a repayment mortgage and not interest-only and
• meet standard requirements in terms of the assessment of the borrower’s ability to pay the mortgage, for example a loan-to-income and credit score test.

There will be a cap on the size of the government’s contingent liability under the scheme of £3.9 billion.”

Martin Wicks is Secretary of the Labour Campaign for Council Housing. This article originally appeared here.