Finance

Starter Homes… False start

Starter Homes

The Government has watered down its Starter Homes scheme before the first foundations have even been dug, discovers Kay Hill

It was a Conservative Party manifesto pledge to gladden the hearts of would-be homeowners across England; 200,000 discounted new homes for first time buyers by 2020. Well, that was the plan before the election in May 2015, but the recent Housing White Paper included significant changes to the scheme, as well as a watering down of the promise on numbers.
When the Starter Homes initiative was first proposed in 2014, it promised a 20% discount on market prices, with only a few provisos – it was for first time buyers under 40, buying newbuild homes costing (with the discount) no more than £250,000 outside London and £450,000 in London. In addition, the homes couldn’t be resold at market value, or let out, until five years after purchase.

However, following changes by the House of Lords, then by MPs, and finally, following public consultations, in February’s Housing White Paper, the scheme is now hedged around with restrictions that may make it considerably less enticing to the people it is supposed to be helping.

Eligibility – as well as an upper age of 40, a new minimum age of 23 has been introduced, to prevent wealthy parents using the scheme to buy homes in the name of student children. Some exemptions have been added, however; joint applicants, where one buyer is over 40, will still be allowed to buy, while injured ex-servicemen and women, alongside partners of those killed in the Forces, will be exempt from age restrictions.

Income – Maximum income levels have been added, so that only households with an income below £80,000 (£90,000 for London) can apply, while the house price caps have been removed. According to homelessness charity Shelter, by 2020, when many of the Starter Homes will be available, first time buyers in London will need a salary of £106,000 and a deposit of £138,000 to get on the property ladder, meaning those hoping to use the scheme to buy in the capital could find themselves excluded.

Mortgages – Prospective buyers of Starter Homes will now have to have a mortgage or home purchase plan to buy their home, to prevent cash buyers with large savings from getting the discount (although, of course, there’s nothing to stop them taking out a mortgage).

Restricted period – This is the real devil-in-the-details and, to make it worse, the exact details are not finalised. The original plan to prevent people from selling at market value or letting out their homes for five years, has now morphed into an onerous 15-year restriction. The White Paper states: “The Government will restrict the sale and sub-letting of Starter Homes following initial sale and will set out its plans in regulations. We have considered carefully the arguments for a longer period and, as a result, the restricted period will be 15 years. The detailed operation of the restricted period will be set out in the regulations.”

It is assumed that this will be some kind of staggered repayment scheme, so that those moving after, say, 12 years, would pay back less of the discount than those moving after two years, but until the regulations are published, it is as yet unknown, as is whether the repayment would be based on the actual cash amount of the discount, or, potentially far worse, on the value of 20% of the home at point of sale.

Other aspects of the scheme have also been watered down; originally 20% of new large developments would have to be Starter Homes, but this has been replaced with a recommendation for just 10%, alongside other forms of affordable housing such as homes for rent and shared ownership. It’s a tacit admission that, for many, owning their own home will always be out of reach. Labour’s shadow Communities Secretary John Healey said in Parliament,  “We were promised a white paper – we’re presented with a white flag… the Tory Party has given up on homeownership.”

And, while the original proposals were for actual homes, with gardens, the White Paper now suggests increasing density and reviewing the Nationally Described Space Standard, leading to the prospect of growing families being potentially stuck for 15 years in tiny apartments.

So for those currently saving, is the scheme worth waiting for? Although details are sketchy, it looks as if it will be possible to combine Help to Buy Equity Loans and ISAs with Starter Homes, so if you are at the early stages of savings and you are looking to buy in one of the areas that has been granted funding already (see box above), then it is worth investigating.
If you are nearly ready to buy, with house prices rising at 7.2% each year nationally, and 11.3% each year in the East, a delay for the completion of Starter Homes could wipe out any savings given by the scheme. You could also save more than 20% by considering a used home. According to the Office for National Statistics, in some areas it’s significantly cheaper; a second-hand flat in Guildford, Cambridge, Brighton, Bath or London would save 18-55% off the price of a newbuild (although new flats are cheaper in Liverpool, Sunderland and Preston).

And finally, how important is it to you to be able to move quickly? If your job is likely to take you around the country, you plan to upsize rapidly, or your family situation is likely to change in the first couple of years, the 15-year clawback period may be expensive, or more trouble than it’s worth.

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