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Millions of UK residents on housing benefit will be able to use their welfare payments to pay mortgages under a proposal set out by Boris Johnson on Thursday.
The prime minister promised to change the rules so that the £30bn a year paid out by the state in housing benefit would count as “income” in mortgage applications.
But bankers and the opposition Labour party questioned how people on housing benefit — who cannot hold more than £16,000 in savings to qualify — would secure a big enough deposit to buy a home in most parts of the country.
Lenders broadly welcomed the proposal publicly, adding they wanted to see details. But a banker at one large lender expressed scepticism in private, pointing out that people on low or irregular incomes often fail to pass the credit score to apply for a mortgage in the first place: “The reality is it sounds a lot more positive than it would be in practice”.
NatWest said it already enabled customers to use some benefit income to support applications for mortgages.
Johnson also promised a review of the mortgage market to make mortgages available to those with deposits of as little as 2 per cent of the value of the home. He confirmed he would push through reforms first promised seven years ago by the then Conservative government that would extend the right-to-buy policy to housing associations tenants.
The prime minister is trying to switch the focus to domestic policy away from the internecine warfare in his Conservative party which saw more than 40 per cent of his MPs express no confidence in his leadership in a ballot this week.
Downing Street is seeking to produce a number of eye-catching policies over the next fortnight designed to appeal to core Tory voters, although insiders admit that not all of the details have been fully worked out.
Michael Gove, levelling-up secretary, said the housing benefit policy would help more people own their home. “The Conservatives have always believed that giving people the chance to own their home, to be part of their community, to pass something on to the next generation is an important desire of the human heart,” he told BBC’s Today programme.
But Lisa Nandy, Gove’s Labour counterpart, said the policy would be “completely unworkable” unless mortgage lenders were on board.
Based on a lender’s typical requirement for a deposit of 15 per cent of the property value to qualify for a mortgage, an individual on housing benefit would only be able to afford a property worth at most £106,000, assuming they had £16,000 savings to make the downpayment and received sufficient housing benefits. The average price of a home has reached £289,099, according to data from Halifax this week.
Johnson said in his speech that he would “explore” letting people on benefits save more by exempting the “lifetime ISA” and “Help to Buy ISA” from the £16,000 cap.
The prime minister said his commitment to extend the right-to-buy to tenants of housing associations — private, not-for profit companies that are now Britain’s main social housing providers — would offer them discounts of up to 70 per cent.
Johnson insisted that every housing association property sold would be replaced by another to ensure there was not a fall in available social housing stock. The original Right to Buy policy, which Margaret Thatcher introduced for council housing in the 1980s, saw 2.6mn sales of homes — but led to a depletion of rental properties for those on low incomes.
But there are doubts about the viability of “one for one replacement” raised by a recent government pilot in the West Midlands. While 1,892 tenants bought their property, the review concluded that the one-for-one replacement had been “challenging” for housing associations. This was because the average price of the homes sold was half that of average new-build price of £280,000 in the region.
Meanwhile, Johnson also confirmed plans to cut import tariffs on foodstuffs not grown in the UK to cut shopping bills. “We do not grow many olives in this country that I’m aware of,” he said. “Why do we have a tariff of 93p per kilo on Turkish olive oil? Why do we have a tariff on bananas?”
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