Will the Government help pay my mortgage?
As the cost of living crisis rages and mortgage rates rise, could we see the Government step in to help households pay their mortgages? At first glance, this probably seems absurd. However, before the COVID pandemic, and perhaps even just before the start of the war in Ukraine, few would have thought that the UK Government would be helping households pay their fuel bills.
A National Housing Fund (NHF) would reduce mortgage payments, not by paying the mortgage and offering temporary respite, but by buying part of the home, providing a permanent reduction in the mortgage itself.
The NHF would help keep existing homeowners in their homes, provide equity loans to help aspiring homeowners buy a home, and increase the public ownership of homes providing security of tenure to those who need it most.
Why does the National Housing Fund make sense?
Political parties like homeowners:
The Conservatives enjoy giving social housing tenants the Right to Buy, cutting stamp duty, and helping first-time buyers to buy.
The Labour party now considers itself to be the party of homeownership and wants to see homeownership rates increase to 70% and social housing restored to the second-biggest form of tenure
The Liberal Democrats want to build 300,000 homes per year and introduce a new rent-to-own model where rent payments give aspiring homeowners an increasing stake in the property, owning it outright after 30 years.
The NHF would increase homeownership
All are keen to see more people own their homes, but the current structure of the housing market means that it is a market where, increasingly, only the wealthy can play.
As housing wealth is increasingly being transferred from one generation to another house prices have become divorced from earnings. The ability to buy a home is less about how much you earn and more about do your parents own their home.
A National Housing Fund could neutralise these intergenerational wealth effects and level up the housing market turning the tide on this growing level of housing wealth inequality. The NHF would create a level playing field where all could participate in the housing market irrespective of their income or wealth.
How would the National Housing Fund be funded?
The NHF would be funded by a combination of public money, institutional money and consumer savings.
NHF Public funding
Public money would be used to increase the public ownership of homes, turning existing homes into social housing rather than having to build new homes. The labour party wants to restore social housing to the second-largest tenure. This requires at least 500,000 additional social homes. At current build-out rates that would take more than 20 years to deliver. However, there are more than 1,000,000 housing transactions each year. If the Government was active in the market for secondhand homes it is easy to see how that 500,000 could be secured in a much shorter time frame.
NHF Institutional funding
Purchasing 500,000 homes is a very big and very costly undertaking. With an average house price of around £300,000, the cost works out at a whopping £150bn. The public purse would therefore need to be supplemented by private sector funds. Pension funds are natural partners or investors in the NHF. Pension funds seek assets with long-term income streams and the rents from social housing provide just that.
Many pension funds are already active in Build To Rent funds, but often struggle to source stock as they prefer to buy new build properties which are in limited supply. When compared to the new build market, the secondhand housing market has supply aplenty.
NHF consumer funding
The National Housing Fund would also offer a savings vehicle for aspiring homeowners to save for their deposits by putting their savings directly into the housing market. These savings would keep pace with the underlying housing market.
National Housing Fund ISA
The NHF would offer a true help-to-buy ISA, where savings are invested directly into property rather than the current Help-to-Buy ISA which is essentially a low-interest savings account that is uncorrelated to house prices.
The UK ISA market is worth around £70bn per year, however around £50bn each year is put into cash ISAs. We believe that if a true property ISA were available it would attract a significant amount of funds from individuals.
It is very difficult for consumers to put residential property into their pensions. However, the National Housing Fund would allow individuals to allocate some of their monthly pension contributions to UK property. It seems crazy to us that given the UK housing market is such a big asset class (c.£8.5 trillion) more than twice the size of all the companies listed on the London Stock Exchange savers cannot easily put residential property into their pension.
NHF landlords work with not against homeowners
First Time Buyers are often pitted against buy-to-let landlords when trying to secure a foothold on the housing ladder. The traditional first-time buyer home makes a great buy-to-let asset.
The NHF would allow landlords and other property investors to work with rather than against first-time buyers. Instead of buying a property landlords invest in the housing market via the NHF and their funds would act as deposits for first-time buyers, both working together to buy property together. The NHF allows landlords to spread their property investment across many homes rather than putting all their eggs in one or two baskets.
NHF creates a new liquid asset class
The challenge with investing in property is that it is an illiquid asset. One tends to buy a whole home rather than part of a home. Large companies get around this problem by splitting their ownership into shares, it is much easier to buy a share in Vodafone for £1 than have to buy the whole company for £27bn.
The NHF would apply the techniques used by companies to the housing market allowing everyone to buy and sell shares in housing, essentially creating a new and liquid asset class that works for the common good.
The NHF a new way to do housing
The NHF would allow everyone to buy as they can afford, and sell as they need creating a housing market where all, irrespective of wealth, income, and background can participate in the housing market and live out their homeownership dreams.