The British obsession with home ownership knows few bounds. But Prime Minister Boris Johnson’s plan to help housing benefit recipients become first-time home buyers will not get far.
The plan, one of several new housing policies, has some merits. It takes aim at an anomaly in the UK benefits system that treats renters more generously than homeowners.
A significant chunk of the UK’s £30bn housing benefit budget currently pays landlords’ mortgages: about a quarter of private renters are in receipt of housing benefit. Helping tenants get on the housing ladder might be a better use of the funds than subsidising owners of multiple dwellings.
But only first-time buyers would be allowed to use housing benefit for mortgages. That makes the policy affordable but unfair. One-in-six families on benefits have a mortgage, according to the Resolution Foundation think-tank.
The restriction means the policy is likely to benefit just a few thousand people. Banks, often reluctant to lend to people on low incomes, typically require a 10 per cent deposit. More than £15,000 would be needed for an average house in the North East, the cheapest region of Britain. More than four in five families on means-tested benefits have no savings at all.
Johnson’s “benefits-to-bricks” slogan is a cheeky inversion of a phrase used by critics of UK housing policy to describe the post-1980s shift away from council-house building toward subsidising low-income tenants to rent privately.
That shift contributed to sharply rising rents and ballooning costs for housing benefit. The latter has increased as a share of non-pension welfare spending from 5 per cent to 18 per cent in the 40 years to 2019-20. The latest policy does nothing to reverse this trend, as it does not address the constrained supply of homes.
The timing is inauspicious. Taking on a large mortgage — and repair costs — is risky when incomes are falling and house prices are slowing. But fears the benefits-to-bricks policy could sow the seeds of the next subprime crisis are overblown. Its uptake will be too limited for that.
The Lex team is interested in hearing more from readers. Please tell us what you think of the UK government’s plan to encourage people on benefits to buy houses in the comments section below