Housing for the Many - Green Paper Response
A New Mortgage Deal for Millennials
“A Labour Government will consider steps to enable more local authority mortgage lending to help local first time buyers” P20
HOUSING FOR THE MANY – A Labour Party Green Paper
The Housing Ladder Problem
It is clear that we are in the midst of a housing crisis, rising homelessness, repossessions, insecure housing and sky high rents. I have chosen to concentrate on the crisis surrounding young people and first time buyers and their difficulty getting a foot on the housing ladder. Not enough homes are being built and what stock there is, is prohibitively expensive and beyond the reach of increasing numbers of people.
Home ownership among our young people especially is collapsing, millennials are now described as ‘Generation Rent’ because it is estimated that by the year 2021, only 26% of young adults will have managed to get onto the housing ladder. Sky rocketing house prices and rent threaten to lock 20-40 year olds out of the housing market, depriving them of the ability to invest in themselves and their families.
As John Healey MP said “The housing market is broken, and current Conservative housing policy is failing to fix it”.
One of the solutions the Labour Party is offering, is to build high quality, truly affordable homes to enable young people and first time buyers take their first steps to home ownership.
This response represents new thinking, a fresh approach as to how this can be achieved, whilst at the same time, complements Labours existing housing strategy. A solution that focusses in particular, on enabling young people and first time buyers to access instantly the existing housing market.
Supplied by Government and delivered by local authorities it will completely changing our thinking around the way mortgages are traditionally supplied. So radically different, that this level of change can only be delivered by a Labour Government. This proposal will offer our young people and first time buyers, the new deal that they so desperately need. A deal that will enable access to the housing market, a more comprehensive choice of the available housing stock and at a cost that leaves a substantial proportion of their disposable income, in their own pockets, improving the quality of their homes and lives.
The mortgage turns the traditional mortgage on its head and represents a valuable investment for the tax payer, increasing the value of every £ they pay in tax.
The Up-side-down Mortgage
The basis of the mortgage is that it provides the ultimate flexibility in how it is paid for to the mortgagee. As a young person or first time buyer they can begin their mortgage by paying the interest only. This has the effect of making the cheapest time to buy a mortgage at the beginning as opposed to the end, hence effectively turning the way we purchase a home, up-side-down.
As their careers develop, so they can start paying off the capital if they choose. This flexibility, which is missing from our current mortgage system, will ensure that at times when life decides to alter the circumstances of the mortgagee, they have a family, re-enter education, their children marry, want a holiday or if disaster strikes and they lose their job. They have a safety net where they can return to paying the minimum interest only payment and never have to face the trauma of losing their home.
The option is also there for the mortgagee to never have to pay off the mortgage which will be addressed later in the report. In this circumstance the mortgagee is in effect, using the home to give them the maximum possible level of disposable income.
Calculating the Mortgage Fund
The amount the mortgagee can borrow is based on a maximum loan of 30% of their total disposable income.
Today for someone with a disposable income of £10,000, this would only allow them a mortgage of £60,000 at 2% interest as capital repayments are included in this cost, giving a monthly repayment of £254.
By changing the formula by which mortgages are supplied and funded, we can greatly enhance the mortgagees spending power, without increasing their monthly payment.
The formula is based on 30% of annual disposable income. At £10,000 disposable income per year the base line annual payment for the mortgagee is £3000.
The amount of funding available now depends entirely on how much interest is charged to the mortgagee.
If £3000 represents 2% of the total mortgage, then the mortgagee has a maximum fund of £150,000.
If 3% interest is charged, the fund now drops to £100,000.
And at 4%, the available fund reduces to £75,000.
So the amount of interest charged is pivotal to the amount of funding available.
The lower the interest rate is kept, the better home and quality of life for the mortgagee and as will be shown later, the higher return on investment from the mortgage provider.
£20bn a year is currently spent on housing benefit. Instead, this money could provide 133,333 mortgages and at even only 2% interest, would create a gross income stream for the tax payer of £400m per year.
The mortgage can be used as a form of self-rent. With an interest being charged but the capital never having to be paid off. The advantage to the mortgagee with this type of arrangement is that unlike renting, their payment never changes throughout the life of the mortgage. As the cost to them, is based on purchase price and not market value.
With the interest rate being set by the government and not by the markets, the same interest rate can be set for the lifetime of the mortgage, meaning that it will never increase providing security and stability.
Forty years ago in 1979 the average house price was in the region of £20,000. Had we started this scheme back then, the average monthly repayment would have been £33 per month.
Forty years later in 2018, even without touching the capital, this mortgagee would still be paying £33 per month for their home and have a debt of £20,000.
Today, that property would be valued in the region of £200,000, more than enough to repay the original debt and to finance downsizing in property when the time comes, creating the building blocks for a comfortable old age and eliminating the worry of affordable heating, food and rent.
In London as with other areas of the country, housing costs can be out of reach for young people. Unable to afford a place of their own near their families, they are unable to buy or rent properties in the areas where they grew up.
Take a random London area, such as Islington North, the average house price in the area is £680,000. Far beyond the reach of many young people. The monthly cost of a mortgage in Islington on the average home is £2882 per month and also requires a deposit of 10% or £68,000.
If this scheme was available to them, the monthly payment could be reduced to £1,133pcm with the same terms, conditions and benefits applying. Areas currently prohibited by today’s mortgage system, could be brought well within reach, giving people greater freedom of the locations in which they choose to live.
What does this mean for the lender?
The lender will ultimately be the tax payer and to ensure that they are getting a good deal, the mortgage could be equity based although this is not essential, as the tax payer will effectively double their investment through rent and owning the debt on the mortgage without the need to remove equity.
On a £150,000 mortgage, if the mortgagee has paid only the interest on the property, then the equity share arrangement, will be determined by the lender and will range anywhere between 0-100% (dependent on the generosity of the lender).
The home could become an investment opportunity for the mortgagee, by encouraging them to make payments off the capital and earn equity in the property. Both lowering their debt and increasing their equity share.
At 2% interest, it will take a mortgagee 50 years to have paid an amount in interest equivalent to the original cost of the home. This means that the local authority will have made the return on their investment and still own the original debt which will be paid off once the property has no further use. However I expect the use of the property to extend well beyond 50 years.
Essentially, for the local authority, this investment has created an income stream where they can expect their original investment, on average to be at least doubled.
Home Inheritance for Future Generations
A home should belong to the family, not just the individual. When a home has been passed on then the original mortgage agreement, could be passed on with it to benefit either the children or grandchildren of the original mortgagee.
In 2080, if salaries rise by an average of 2% per year, the equivalent salary of someone earning £10,000 today would potentially be £45,000 by 2080. However the annual interest payment for the property will still be £3000 per year. Meaning that the percentage of disposable income needed to reside in the property has fallen from 30% to 6.15% and will continue to fall as long as salaries increase. Meaning that future generations continue to increase their wealth and security.
The advantages for the millennial home buyer:
Highly flexible repayment plan.
Mortgage can be based on 30% of disposable income meaning increased disposable income.
Greater spending power meaning that the mortgagee can afford a property almost 3x the value they can afford today under current mortgage allowances.
With enhanced quality of home comes an improved quality of life.
With deposit free mortgage availability, the young person can get instant access to the housing market.
Provides them with an investment opportunity (dependent on equity deal).
Creates a return/profit for the tax payer.
Creates an income stream for the local authority equivalent to the mortgage paid, less overheads.
Increases the value of every £ the tax payer spends.
Creates security in their homes by ending repossession.
Creates set payments for entire length of mortgage.
Creates low housing costs into and throughout retirement.
Creates greater choice of the available housing stock.
If housing price rises are under performing allows for return to interest only payments and investment can be sought elsewhere.
Overall costs greatly reduced in comparison to a lifetime of renting.
More disposable income created to enjoy life.
Less money spent on housing benefit.
More families living in their own homes.
Could be £100's of £1000's better off compared to renting.
Mortgages can be lifelong.
Could potentially pay more for the property if a repayment plan isn’t in place.
May not be entitled to equity share.
Responsible for own repairs and maintenance. (Also an advantage for the lender).
An optional discount on the mortgage or qualification for eligibility could be the requirement to be a member of a Trade Union or Trade Association. This is to provide the greatest security of interest payment and to ensure that the mortgagee enjoys the highest level of job security and career development, to complete the mortgage agreement.
The mortgagee must also be in full time employment, contracted employment, good history of self-employment. Zero hours contracted work will be illegible for qualification.
This creates a fantastic opportunity for the tax payer to increase the value of the tax £’s they spend.
An opportunity for pension schemes to double their investment and help to ensure their longevity of these vital schemes well into the future.
An opportunity for potential private investors to make a steady return on low-risk investment
New Central Investment Bank
Funding from the new Central Bank would create a return for the tax payer and provide the substantial capital needed to get ‘Generation Rent’ onto the housing ladder.
(Whilst the mortgage suggestion has been included in the Green Paper, I have also been informed that there is 'scope’ for funding from the New Investment Bank)
The numbers are there to be played with. There are many permutations of the direction they could take. How you play with them, depends entirely on what you want to achieve. The minimum is that after 100 years you effectively treble the value of the initial investment, double it after 50 years. So there is no doubt that profit can be made. This system it is a balance between profit and quality of life.
Private Rented Sector
A system of housing such as this will undoubtedly have effects on existing markets. The private rented sector has created a very profitable place for people wanting to invest their money. A property can create income in terms of rent and the appreciation in value of the asset.
Providing interest only mortgages removes the rental element to this investment and therefore makes the private rented sector, a far less attractive investment opportunity. Therefore I would expect to see many homes currently used as rental investment, to be released into the housing market.
Property investment will remain, but rent will be based nearer the cost price of a property as opposed to market value. The private rented sector will have to adapt by improving standards and reducing costs, in order to survive.
The Up-Side-Down Mortgage Could Seriously Improve Your Wealth
Today’s renters can pay a rent based on up to 80% of the market value of the property. If the rented property was valued at £150,000, then the rent would be based on a property valued of £120,000. This would give a rental cost of £509 per month.
Over the next 50 years, if the house value went up by just 1% per year, the rent being paid in 2068 would be £836 per month or £10,032 per year. Over this 50 year period the renter would have paid an eye watering £435,900 in rent on a home with a value of £150,000. At the end of which the renter owns no property and has earned zero equity in the property. The reason why this cost is so high, is because rent, is inextricably linked to house value, not purchase price.
With the Up-Side-Down mortgage, the interest payments on a £150,000 property start at £3,000 per year and never change. At the end of the same 50 year period the mortgagee will have paid £150,000 in interest, £285,900 less than if they had rented. In addition to this they have also earned the equity on the property which equates to £96,694.
Meaning that the over the 50 year period, the mortgagee is £382,594 better off due to savings made from rent and equity earned on the property, than compared to a privately rented home.
Essentially giving a real terms boost to the householders finances on average of £7,651.99 per year.
Changing the way mortgages are supplied may influence the ways in which builders build. I believe that they will build the homes to match the available funding and to a price and standard required by their customers.
Freeing up the land to build
By improving access and purchasing power to the housing market, we could potentially create a new minimum standard in housing with the minimum value of a home being £150,000.
This would render many properties below this value redundant and of little use as an investment.
It is possible that the use of many older properties, below a £150,000 value would become redundant, freeing up land that can be re built upon with new, higher quality homes that regenerate an area and provides a better investment for the mortgagee.
This is just another option we could take in dealing with the housing crisis. In addition to making homes more affordable, we can also look at restructuring mortgages over longer terms, to bring the existing market, back within the reach of ordinary people.
We can provide the security people need so as they’ll never be faced with having their home repossessed, provide families a home they can call their own, end the scandal of homeless children and provide people with their very own investment opportunity.
The lower housing costs this will create will put more money into the pockets of ordinary people allowing them to live and enjoy a few more of the luxuries they want.
Young people and first time buyers can get instant access to the housing market. With no more years of saving for a mortgage the investment they make in themselves and their families can begin immediately.
For the tax payer, they will be spending far less on housing benefits and income support. And on top of this, the tax payer will also make a return on their investment, increasing the value of every pound spent, to use on the services we want.
Thank you for reading
Housing for the Many - Green Paper Response
A New Mortgage Deal for Millennials
Tuesday, 15 May 2018
Housing for the Many - Green Paper Response
Wednesday, 20 December 2017
The question popped into my mind, "why is our NHS, our social housing and our publicly owned industries so vulnerable to being privatised, and how do we protect them?
Well, we know that they are 'public assets' and as soon as we let the tories anywhere near them, they are broken up and get sold off, or 'asset stripped'. It's been this way for the last 40 years.
But it also occurred to me, that just the act of privatisation is not necessarily going to be damaging for that industry and may, just may provide it with a degree of protection. The real damage begins, by how that industry is managed.
Give the industry to people intent on making profit (conservatives/neo-liberals), and invariably employee terms and conditions are reduced, the customer service experience is diluted and prices go up. We can see this happening today as our hospitals fail to meet demand and the unaffordability of housing, which is displacing so many families. However if managed correctly (non profit) and there is no reason why employees cannot be looked after and customers given 'world class' service at great value for the tax payer.
A similar train of thought I recently explored with housing, suggested that the best way to protect the social housing market could be to achieve 100% home ownership essentially ending the need for social housing, an idea which is not beyond the realms of possibility. People can enjoy the benefits of home ownership and can practically choose the level of repayment starting above a set minimum of 2% or 3%. This would bring the affordability of a decent home within the grasp of even the smallest of budgets. It would be possible to pay as little as £250pcm for a £150,000 home. The finance is supplied by the tax payer who essentially becomes a mortgage provider and shareholder, where all profits are directed back to the tax payer.
People get quality, affordable housing and the next time the tories get into power, they can't touch it because it isn't a state owned asset. The social housing market has been privatised with a little piece of it owned by everybody.
After all, it is unlikely that the neoliberals new best friend will be to re-nationalise industry.
Tuesday, 10 October 2017
I don’t think that there is anyone on the UK who isn’t aware of the seriousness of the housing crisis we are currently experiencing.
2. Shortage of new affordable homes to buy
3. Getting young people onto the housing ladder
I don’t think that there is any reason why we cant tackle all of these issues in one go and with zero cost to the tax payer.
This idea started life as quite a complex solution some 6 months ago but over time, through development has simplified substantially.
Tuesday, 4 July 2017
Cos the bank wouldn’t give us a loan,
My job, it didn’t pay very much,
But at least, we had our own home.
With a little one, on the way,
It wasn’t a home we would ever own,
Just a place we’d pay, to stay.
And the rent, it seemed pretty low,
But that money, it went to the landlord,
Not invested in my family, to grow.
And my rent, well that went up too,
“Market rates” the landlord he said to me,
“Only right that your rent’s based on value”
My rent, well that too has tripled,
It raids my disposable income,
My finances are all but crippled.
My outgoings would’ve been less,
Had no choice but to pay my landlord,
In my own family, I couldn’t invest.
On what’s now a two hundred grand home,
Imagine how small my mortgage would be,
Had the bank only given us a loan.
A lifetime with little to show,
And five hundred grand, in rent I’ve paid,
Seems a lot, for my twenty grand home.
When I couldn’t pay my host,
But hundreds of thousands in rent I've paid,
Tis' true, the poor pay the most.
Wednesday, 14 June 2017
Its a pretty utopian piece but it is an answer to a question he posed on why immigration wasn’t mentioned or debated during the general election.
Personally I think that there is a beautiful end to the immigration situation that is just waiting to burst through with a huge beaming smile on its face where ‘all’ of our well founded, sensible concerns surrounding immigration will evaporate. We’ll keep all of the professional staff supporting our essential services and there will also be a place for our low skilled immigrant workers. And the beauty of it, is that you don’t have to close a single border to achieve it.
The key to creating the perfect immigration policy is not to have an immigration policy but to create a policy that will have a direct affect on immigration.
Sorry, I’m gushing, Ill get to the point.
Ok, the policy to achieve this doesn’t have to be created because, it already exists. And its one of Corbyns. Its the minimum wage policy.
The main reason people want to come here is because there is an abundance of work, unfortunately it is low paid work and its seemingly unregulated. Many employers are all too happy to exploit migrant workers for the obvious profitability and efficiency reasons. As and when Corbyn achieves power he will bring in the £10 minimum wage, but the difference between his and the tory minimum wage is that Labour will enforce it. This will effectively end the ability for UK based companies to exploit migrant workers as cheap labour. Whilst this naturally reduces the need for migrant workers to the UK, the it also ensures that we maintain a free flow of the highly skilled professionals we need. Balance is restored. The low skilled workers that still come to the UK will not be encroaching on the domestic jobs market. They will enjoy decent pay, decent terms and conditions and with Corbyns house building and decent living standards policy, the UK will be a great place to come to, to live, work and play.
Looking towards the future, people are noticing what the left have achieved in the UK, including the Americans I’ve noticed. But its anyone’s guess how far this will go. Hopefully all the way.
So why didn’t they talk about this at the election? Well, it was, there were a few politicians who mentioned it but the public and media didn’t pick up on it. Dianne Abbott came close weeks ago and it wasn’t picked up, even Jeremy Corbyn mentioned it and again, no one picked up on it.
Maybe, for Corbyn to have hailed Labour as the 'Party of Immgrant Reduction' would have been too much for people to take in.
Maybe it's for other people to realise what the 'living wage policy' will mean in its entirety.
Saturday, 20 May 2017
This seems like a pretty bold statement considering that Jeremy Corbyn barely has an immigration policy to speak of.
But the truth of it, is that whilst not having a direct immigration policy pre se, he does have a policy that will affect the numbers of low paid and low skilled migrant workers, seeking work in the UK.
Those coming to the UK for work are broadly split into two groups, the highly skilled professionals such as doctors and nurses. There is no argument that we need these people and because of their high levels of pay, they contribute significantly to the economy. And then the low skilled, low paid workers who don’t contribute much, if anything to British society.
An immigration policy that is purely based on the numbers of immigrants to the UK would have a negative effect on both groups. So whilst we would reduce the numbers of low skilled immigrants, we would also reduce the numbers of highly skilled professional immigrants that our services depend on. Therefore a broad immigration policy, just won’t do the job. Were stuck, between a rock and a hard place.
What we do need, is a policy that can split the highly skilled professionals from the low skilled workers. And Jeremy Corbyn has achieved just that.
The problem is that we associate Jeremy Corbyn with New Labour who were basically neo-liberals. The tories introduced neo-liberalism with Thatcher, and Tony Blair, to the detriment of us all, carried it on. Neo-liberal economics in part, frees markets with de-regulation. The banks took full advantage of it and persuaded people, to take out mortgages that they couldn't afford and the whole system went tits up when Brown was holding the reins.
Corbyn doesn't believe in neo-liberal economics, he believes in socialism. So instead of taking from the people of this country, he will invest in them. He will invest in our education and invest in infrastructure to create the jobs, so that ordinary people like us, will become richer.
The rise in immigration coincides exactly with the rise in neo-liberalism. Rocketing during the Thatcher and Blair eras and continuing through Cameron and May who have all followed neo-liberal economics. The last socialist government we had, provided decent standards of living, decent wages and decent homes and incidentally had the lowest historical levels of immigration.
Neo-liberal governments under Thatcher and Blair destroyed many well paid industries, coal mining comes to mind. The attacks on our unions has caused the lowering of salaries and degradation of our terms and conditions. Pay so low that it meant that for many of our own people, working became uneconomical. But at the time, we had a decent social welfare system, that we all paid into, to fall back on. But, this left a shortage of people willing to take on low paid work. So this is what opened he floodgates to low paid, low skilled migrant workers and their numbers rocketed. All this under the Thatcher and Blair eras.
In the last socialist labour government who provided decent wages and decent homes in 1975-1979, immigration was at its lowest.
So historically, immigration under a socialist government is low, under a neoliberal government immigration rises high, because it relies on cheap labour.
So how will Labour tackle immigration, well the policy is already in the Labour manifesto. Its the £10 minimum wage. When labour introduce it and enforce it, it will remove the ability for companies to be able to exploit cheap migrant labour from abroad. In fact it will make employing migrant workers more expensive than employing our own native workforce and as a result, the numbers of immigrants seeking work in the UK, will tumble to levels not seen since 1975.
Theresa May’s solution, as far as I can see is to increase the levy on employers who currently recruit from abroad, this currently stands at £1000 but will increase to £2000. This will in the main affect the professional group that we first spoke of and will reduce the number of professional doctors and nurses that we rely on. She will also end free movement which would end access to the European markets and damage local business. So we will effectively close the door on non professional EU migrants and make it much harder for EU professionals to come and support our essential services. In addition to this, she is not enforcing her lower minimum wage for rogue employers which will enable her to keep our wages low.
But what does this matter if all of the immigrants are gone? I hear you say. Well this is important because of what’s coming with Mays Brexit.
May’s team have visited several countries in recent months seeking free trade agreements. But as a condition of these agreements, these countries are insisting on their own peoples ‘freedom of movement’ with the UK. This means that any free trade agreements she gets in the future, will allow immigrants from those countries access to the UK jobs markets.
Theresa May won’t end immigration, she’ll just replace EU migrants with migrants from elsewhere.
So May will close the UK border to EU citizens as promised, but will open them to low paid, low skilled migrants from across the world.
It is little wonder that she is refusing to debate Jeremy Corbyn.
So with a socialist Jeremy Corbyn government, we would see EU immigration numbers tumble, we would keep tariff free access to the single market and we wouldn’t have to open our borders to the rest of the world.
If the numbers of immigrants to the UK concerns you, then Labour is the only party who will reduce it.
Friday, 12 May 2017
The number one issue with people have with brexit is to secure the greatest reduction of immigrants entering the UK.
There is a feeling that the person best placed to deliver this is Theresa May. Jeremy Corbyn does not have a policy per se in name, but I don't think this means he doesn't have one.
In fact I think that the person most likely to deliver the greatest reduction in migrants is Jeremy Corbyn.
The first thing we have to realise is that migrants come here to work, some in our essential services which we all agree we need and those that come here that are exploited.
These migrants find it easy to find work in 'off the grid' jobs and are happy to accept pay that is far below the British minimum wage. These jobs are supplied in their 100's of thousands by British businesses and undercut the salaries of our native workers.
They haven't taken our jobs, these employers didn't create these jobs with local people in mind.
So the problem isn't directly an immigration problem but a problem with british employers.
So the solution to the immigration problem we have isn't to close the door on immigrants but to shut down the opportunity for unscrupulous employers to exploit their labour.
Jeremy Corbyn had already got this policy embedded into the Labour manifesto.
The £10 minimum wage.
By removing the ability for employers to exploit migrant workers, you also remove their motivation to view the UK as an opportunity for work. Employers will all have to pay enforced minimum salaries, which will force employers away from using cheap, migrant labour and the focus will naturally result in British jobs for British people.
The reduced opportunity for migrant workers can only bring about a massive reduction in the numbers of overseas low skilled workers seeking employment in the UK. This would also apply to refugees who would be welcome here as a place of safety but find that the opportunity to settle is much harder.
So it matters little if we retain 'free movement' because we will have removed the opportunity for migrants to find employment unless they are the high skilled professionals we need.
By not closing our borders we also have a far greater chance of accessing the single market tariff free and get the best Brexit deal with the EU.