Home ownership issues

This content applies to England only.

The current climate of economic uncertainty is extremely worrying for the 70% of households in England who own their own home. [1]

As house prices have spiralled upwards over the last five years, increasing numbers of borrowers have taken out risky mortgage loans that stretch them to their financial limits. A growing number of people are finding themselves priced out of buying altogether. The Government's policy of increasing home ownership in this country is looking increasingly unrealistic and out of date.

Shelter welcomes Government initiatives to provide more affordable housing through low cost home ownership schemes, alongside more social rented homes. However, overall we believe the sector's most pressing issue is to provide better protection for home owners at risk of repossession and better regulation of the industry.

How many people really own their home?

In reality, it's only the privileged few who can afford to buy their homes outright. By contrast, most people can only afford to buy their home through taking out a mortgage loan secured against their property. So, although on paper over 14.5 million households in England (70% of the total households) already own their home, over half (55%) of these will still have outstanding mortgage debt to pay back,[2] meaning that these same homes can be repossessed should households be unable to keep up with future mortgage repayments.

Issues with home ownership

The current affordability crisis

The most conspicuous problem with the UK property market has been spiralling house prices, which have sparked a situation where many people cannot afford to buy. There are many reasons why house prices have risen so rapidly. On the supply side, levels of house building have failed to keep pace with high levels of demand. On the demand side, split families, smaller households, the increasing popularity of buy-to-let as an investment, and second-home ownership have all contributed to a situation where more and more people are competing to buy the same properties.

Housing prices are now starting to fall, as cracks in the economy are showing. However, this makes no difference to the affordability of homes people have already bought, and house prices for first time buyers are now so out of reach that the slow down is having little or no impact on affordability.

The risk of home repossession

Even if you can get on the ladder, you're still not guaranteed to be in a secure position. With house prices through the roof, it has become commonplace for people to be lent mortgage loans many times their annual salary, with hefty repayments that stretch households to the limits of what they can afford.  In these circumstances, there is a high risk of borrowers being unable to meet future repayments, should the size of their repayments increase relative to their income. This in turn raises the threat of a home being repossessed should a borrower be unable to remedy the situation, potentially leading to homelessness for that individual and all their dependants.

Buy and Leaseback schemes have the potential to offer a way people struggling to meet their mortgage payments can keep their homes. However, some practices in this area give cause for concern. A lack of regulation means that unscrupulous companies can evict former owners after six months and then sell the property for a significant profit.

The Council for Mortgage Lenders has predicted that mortgage repossessions will rise to 45,000 over the course of 2008. Evidence suggests the problem is worst in low-cost home ownership schemes and, with increasing turmoil in the sub-prime market, this trend looks set to continue.

Adverse changes to the benefit system

In the late 1980s and early 1990s there were changes to the rules governing what benefits home-owners could apply for. Under the old system, people on low incomes who were unable to keep up with their mortgage payments (for example, due to time off work with ill health) could claim benefits to pay the interest on their mortgage until their circumstances improved. Now people in this situation do not get any help with their mortgage for the first nine months - by which time, in almost all cases, repossession will have taken place.

The impact of the Right to Buy scheme

In 1979, council housing tenants were granted the Right to Buy their homes. In response, more than 1.75 million council tenants bought their homes in England, [3] in many cases spurred on by private companies seeking to exploit the Right to Buy for commercial gain. This was later followed by the Right to Acquire, which granted the similar privileges to housing association tenants. This has caused a massive reduction in the size of the social housing sector in England, leading to longer waiting lists for social housing and a rising number of people living in overcrowded, temporary accommodation.

How to address these issues

Shelter is not opposed to home ownership and, on the contrary, we believe home owners need greater protection. We are, however, opposed to a situation in which people's homes are insecure and at risk of being lost. We believe that if the Government wants to achieve its objective of increasing the proportion of the UK population who own their homes, then it is essential it improves the safety net and advice available, so that people are helped to keep their homes and avoid homelessness. Shelter believes it is not acceptable for individuals and families alone to bear the brunt of unexpected shifts in the economy or shoulder the risks inherent in an increasingly volatile housing market.

Low-cost home ownership schemes

Faced with a growing affordability crisis, Shelter welcomes the Government's commitment to providing more affordable housing through low-cost home ownership (LCHO) schemes. These are typically shared ownership schemes, where the property in question is part-owned by the resident and part-owned and managed by a housing association. People living in shared ownership housing pay a mortgage for the part they own and rent for the part they don't.

Improved mortgage advice and safety nets

Shelter believes the safety nets and advice available to home-owners need to be improved so that people are helped to keep their home and avoid homelessness. We believe that the current state safety net should be replaced by a reformed system, funded through contributions from lenders, individuals and the Government. In particular, we believe the Government should closely examine the Joseph Rowntree Foundation's proposals for a Sustainable Home Ownership Partnership, a block insurance fund, which would pay out on a time-limited basis to homeowners in danger of repossession.

Protection of council houses in areas of high demand

Shelter supports the Government's action to stem the loss of council houses in high-demand areas and address the problem of the commercial exploitation of the Right to Buy. Once it is operating successfully, we believe the Social Homebuy scheme should replace the Right to Buy and the Right to Acquire which have decimated the supply of social housing stock. Alongside this, more needs to be done to expand the number of social rented homes in the UK.

Campaign demands

Shelter calls for:

• lenders to use repossession only as a last resort
• tougher enforcement of FSA rules on responsible lending behaviour
• FSA regulation of sale and leaseback schemes, buy-to-let mortgages and second charge lending.

[1] Survey of English Housing Preliminary Results 2006/07, CLG, 2007.

[2] Ibid.

[3] Social Housing Sales, Live Tables, Table 670, www.communities.gov.uk.