Extending Right to Buy to housing association tenants and changing rules to allow certain people to direct housing benefit towards a mortgage could allow four million people access to the property ladder.

In a speech given in Blackpool last week, Prime Minister Boris Johnson said that 2.5 million tenants renting from housing associations would be given the opportunity to buy them outright.

He said the government would work with the housing association sector to design the scheme and it would also commit to building replacement homes for each one sold.

Johnson said: “Just as no generation should be locked out of home ownership because of when they were born, so nobody should be barred from that same dream simply because of where they live now.

“For four decades it has been possible for council home tenants to use a discount to buy the property they live in.”

He said that since its launch Right to Buy has helped two million people into homeownership and it had allowed people to be in “charge of their own family home, able to make improvements and add value as they please”.

First time buyers

Johnson added that the government would change rules so 1.5 million people who are in work but on housing benefit could use it towards a mortgage, rather than it going directly to a private landlord or housing association.

Johnson also confirmed that it would launch an “independent review of access to mortgage finance for first-time buyers” with the aim of widening access to low-cost, low-deposit finance.

He said that rising house prices, mortgage lending restrictions and high deposit requirements were limiting the number of young people that could buy a home. He pointed out that half of today’s renters could afford the monthly cost of a mortgage but only six per cent could secure a first-time buyer mortgage.

“First-time buyers are trying to hit a continually moving target. By the time they’ve put aside money to secure their mortgage, prices have risen and it’s no longer enough. And of course the global rise in the cost of living is only making life harder for savers.

“So we want it to be easier to get a mortgage. Reporting back this Autumn [the review] will look at how we can give our nation of aspiring homeowners better access to low-deposit mortgages,” he explained.

Levelling Up Secretary Michael Gove said that extending Right to Buy and launching a review of the mortgage market showed it was “backing first-time buyers, breaking down barriers to homeownership and delivering on the people’s priorities”.

He added that it would change rules to encourage those claiming Universal Credit to save for a deposit. Current rules mean that the amount of Universal Credit declines if someone’s savings exceed £6,000 and stop when the exceed £16,000.

Gove continued that it would make Lifetime ISAs exempt from these rules, so people could put aside a little each month for a deposit without impacting Universal Credit payments.

The government will also change the timeline for its support for mortgage interest loan, which aims a loan that helps claimants pay interest on mortgages, from nine months of unemployment to three months.

It said that this would “incentivise people to find work again and bring government into line with what lenders offer in these circumstances”.

Gove said that he would bring forward its commitment to deliver one million new homes by the end of this parliament.

Proposals fail to address supply and demand issues, industry says

Dan Wilson Craw, deputy director of Generation Rent, said that Johnson had “failed to set out action to deal with the unaffordable level of house prices and rents”.

“Neither the review of low-deposit mortgages, nor extending Right to Buy to housing associations will address the shortage of homes we need in places people most want to live. For that we need a programme of social house building beyond the one-to-one replacement of homes bought under Right to Buy,” he explained.

Wilson Craw said that expanding eligibility of Universal Credit to people saving towards a deposit would “restore some fairness to the benefits system” but there were more people with no savings struggling to find somewhere to live with current Local Housing Allowance rates.

He added that broadening housing benefit to cover mortgage payments was unlikely to help people currently receiving benefits to secure a mortgage as they would not pass lenders’ affordability tests.

Marc von Grundherr, director of Benham and Reeves, said that previous initiatives which permitted social tenants to purchase their properties had backfired and caused a significant shortage of stock which had driven up property prices.

He said the commitment to replace the stock might mitigate this but that the government’s track record on delivering homes was “woeful at best and social housing has long been an area of serious neglect”.

“To allow them to auction off existing housing association stock while also failing miserably to replace it would be a big mistake indeed,” added von Grundherr.

Councillor David Renard, housing spokesperson for the Local Government Association, said extending Right to Buy could help more on the housing ladder, but proposals should not lead to a fall in affordable social housing.

“Any houses sold must be replaced quickly, in the same local authority area and on a like for like basis. Equally, the cost of discounts must not be funded from the sale of council housing stock, nor be met from existing government funding commitments for delivery of additional affordable homes,” he said.

Renard said that the Right to Buy scheme for council tenants needed “urgent reform” and councils needed to be able to keep 100 per cent of receipts and set discounts locally.

“The number of new council homes being built is not able to keep pace with those sold under Right to Buy, and the discounts available, along with the funds that have to be returned to Treasury, are leaving councils with less and less resources to catch up,” he noted.

Benefits changes raises questions for lenders

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said that he understood the logic of reducing the benefits bill, but this was dependent on housing prices continuing to rise rapidly.

He added: “The other point is that it relies on lenders taking on borrowers who are on benefits, as they are often the ones who are struggling not just with raising deposits but making repayments.

“They are often on lower salaries and struggling to make ends meet, so would lenders take them on from a commercial point of view without some sort of guarantee from the government that they will meet their repayments?”

Vikki Jefferies, proposition director at Primis, said that the plan to help lower-paid workers use housing benefit and make monthly payments should be “welcomed”.

“This kind of government intervention is vital in encouraging greater homeownership in the UK. With average rents rising by a further 1.1 per cent in May, this policy will also support those who are trapped paying large proportions of their pay packets on rent.

“However, while government action on affordability is encouraging, there is still a broader issue here – the lack of affordable housing stock. It will therefore be important to see if the government’s promise that each housing association property sold will be replaced by another actually comes to fruition,” she said.