The FirstBuy Programme

In brief

  • A new national housing association, FirstBuy, to be formed exclusively dedicated to helping young people with average earnings of less than £10 per hour to buy their first home.
  • The Firstbuy Housing association will purchase and own the land  leaving the young person to raise the mortgage for the property. Mortgages start at £50,000 which should be affordable for young people on £13,500 per year or more. Interest only mortgages with typical premiums of £146 per month but a corresponding amount must be put into savings with the Housing association.
  • Young people can register as members of the association from the age of 18. All members must be able to demonstrate that they were UK educated.
  • The Firstbuy Housing association will negotiate with principle lenders suitable mortgage products for its members and suitable saver accounts with high street banks/building societies
  • The Firstbuy housing association will offer a range of modular homes for young people to buy off plan for £50,000 or less.
  • Restrictive convenants will require residents to sell their properties back to Firstbuy after fifteen years of occupancy in order to recycle the properties for each subsequent generation of young people
  • FirstBuy properties are protected from appreciation in value in order to ensure continuous affordability for subsequent generations of young people on low incomes.
  • The Firstbuy housing association will establish a Land bank ‘hotline’ for young people to upload the gps co-ordinates of infill and brown field land plots in their local area that they think may be suitable acquisitions for the housing association  to investigate and report back on.
  • Local authorities will be asked to transfer land to the Firstbuy housing association landbank to meet current and future demand for FirstBuy properties
  • FirstBuy housing associations will be allowed to ‘reserve’ some Firstbuy properties areas that fall due for resale for local young people from established local families to help preserve the character of local communities.
  • Transitional arrangements would apply for three years for 21-25 year olders who can currently demonstrate eligible earnings and a 5% deposit

Background

The lack of affordable social housing for first-time buyers is a well-known fact of life. The political parties invariably promise to build ‘x’ number of new homes each year come the general election but the building programs never materialise on the scale promised and/or result in new homes that are often unaffordable to young people on low incomes.

One other observation that I have always been frustrated by is the way that new properties intended as starter homes appreciated in value as soon as they change hands and very quickly become unaffordable for first-time buyers. Our national ‘stock’ of starter homes depletes as fast as they are built leaving the housing market in a perpetual crisis mode. There surely needs to be a way of breaking this pattern. This latter point is particularly acute in rural or suburban communities and in the South-East where property prices are well beyond the means of most young people.

I’ve advocated a number of national schemes that aim to address some of these housing challenges.

Locallet called on some council properties in each area to be reserved for letting to young people from well established extended local families. Firstlet is a scheme to bring 150,000 shop flats onto the market for renting by young people on low incomes. Nightingale homes calls for the construction of 122,000 new sheltered housing for older people each year for ten years with the knock-on affect to the number of properties available for private rent.

FirstBuy completes these suite of measures addressing the independence aspirations of young people and is specifically aimed at helping young people working full-time on national minimum wage or better to buy their first home.

Proposals

A new national housing association, FirstBuy, to be formed exclusively dedicated to helping young people with average earnings of less than £10 per hour to buy their first home.

We already have housing associations but we do not have a national housing association that is exclusively dedicated to helping young people on low incomes get on the property ladder. Gaining their own place to live is one of the key aspirations of many young people. Recent reports suggest that upto half the parents in the country are concerned that their offsprings ability will be unable to  afford their own place given average earnings and the cost of property. The time for such an housing association is long overdue.

Young people can register as members of the association from the age of 18. All members must be able to demonstrate that they were UK educated

Young people will need to register with the Firstbuy housing association. They will need to prove that they were UK educated. This will simply be restricted to British citizens should the country decide to quit the European Union.

The Firstbuy Housing association will purchase and own the land leaving the young person to raise the mortgage for the property. Mortgages start at £50,000 which should be affordable for young people on £13,500 per year or more. Interest only mortgages with typical payments of £146 per month but a corresponding amount must be put into savings with the Housing association.

The government will be pressed to provide an annual budget of £2 billion per year from its net investment funds to support Firstbuy. The Government have a total spend on net investment of between £26 and £30 billion per year across all government departments and so this is an appropriation rather than additional borrowing.

The housing association will seek to acquire land to support 100,000 new builds per year. Plots will be a maximum of 100 m2 at a national average ceiling of £20,000 per plot. There will be allowances for regional variations in land prices.

The housing association will negotiate nationally with principle lenders to create FirstBuy mortgages for its members on the best possible terms. All mortgages will be on an interest only basis but an amount equivalent to the monthly premium must also be saved each month in the saver accounts for reasons given below. Typical total cost, at the time of writing, will therefore be around £292 per month

Young people will need to demonstrate average earnings for three consecutive years of less than £10 ph to be eligible for a Firstbuy property. They will also needed demonstrate continuous saving of the anticipated mortgage payment.

The Firstbuy scheme is targeted at 18 year olds.The normal process of being able to demonstrate stablility of employment and average earnings to support a mortgage application will still apply. Minor breaks in the employment record should not be an obstacle. The housing association will be expected to assist with negotiations and applications.

The savings account will need to establish a potential ‘track record’ of mortgage payments so it will be important not to miss a monthly transfer during the qualifying period. The savings will be used for a 5% deposit on the property . Any unspent balance will be made ordinarily available to the account holder

Interest on Firstbuy saver accounts will be tax free.

Transitional arrangement will apply for existing young people who can prove continuous employment for three years at or below £10 per hour and who have a 5% deposit available

There are a generation of 21-25 year olds that may already meet the above criteria and do not need a three year qualifying period.

There would be a transitional arrangement for three years during which time any young person that meets the above criteria on employment and employment earnings and who has the required depost can apply for a Firstbuy property mortgage.

Firstbuy mortguages must be affordable for young people on national minimum wage.

The price point is an affordable mortgage for a young person earning no more than a full-time, national minimum wage during the three year qualifying period. This would suggest the maximum mortgage of £50,000 based on 3.7 times higher rate earnings

Higher rate earnings assumes national mimimum wage for 21 year olds and older at £6.50 per hour on 40 hours per week.

The Firstbuy housing association will offer a range of modular homes for young people to buy off plan for £50,000 or less.

Clearly there are few places in the UK that still have bricks and mortar properties available at that price apart from properties requiring extensive refurbishment. The cost of freehold exasperates the problem particularly in rural areas and the South East. The housing association will take care of the freehold.

The building industry has been developing modular home technology for decades. These kit homes are commonplace in other countries and offer an attractive, quality ,  and affordable solution for young people on low incomes. I am not the first to suggest modular homes as a potential solution to the housing problem but Firstbuy would be the first national programme which puts these kit homes at the heart of the solution for young people. All of the kit homes in the link below are priced below £50,000

http://www.nacsba.org.uk/selfbuildonashoestring/12-shoestring/39-shoestring2013top16

A number of mortgage companies in the UK already offering lending on modular homes and the FirstBuy Housing Association will look to expand their number.

Restrictive covenants will require residents to sell their properties back to Firstbuy after fifteen years of occupancy in order to recycle the properties for each subsequent generation of young people

This is the key to breaking the housing crisis for present and future generations .The lack of this kind of clause in all the other help for first time buyer schemes that have run in this country is, in my view, why we constantly need help for first time buyers. We need a certain level of housing stock that is locked into first time buyers whilst encouraging young people to get on the housing ladder. The problem with the schemes that have gone before is that the starter homes are sold on to second or third time buyers at an ever increasing value. Homes that were originally built for first time buyers are usually priced beyond their means within ten years or more of them being built and the housing shortage for first time buyers never gets resolved. We need to break that cycle.

FirstBuy will overturn conventional practise by including convenants in the freehold that requires residents to move out after fifteen years. This is to force the property to be recycled to subsequent generations. The tacit assumption is that average earnings of the residents will have increased sufficiently for the older resident to move onto their second home.

The resale price of a FirstBuy property will be capped at the original purchase price plus inflation. Firstbuy properties are isolated from local market conditions

This has been the other big problem for starter homes. Housing booms and the general appreciation of property values drives up house prices. This has been particularly acute in the South-East and rural areas and is another behavior that Firstbuy properties needs to address.

The resident will not therefore gain equity through appreciation of the house value to ensure the property remains affordable to future generations. However, the resale unlocks the amounts that were accumulating in the saver account since the mortgage was first taken out  and the original deposit. This cound,  for instance, be used as a deposit on their next home. Such savings would be worth £26,280 after fifteen years plus interest.

The Firstbuy housing association will establish a Land bank ‘hotline’ for young people and others to upload the GPS co-ordinates of infill and brown field land plots in their local area that they think may be suitable land plots for the housing association to investigate and report back on.

The lack of suitable building plots is a key constraint to the Firstbuy programme. The housing association will need help identifying suitable land plots around the country to acquire for Firstbuy development. Local people often have knowledge of sites that would be appropriate for infill or brown field development. We need to provide people with the means to alert the housing association of appropriate opportunities for them to investigate.

Local authorities will be asked to zone and reserve land for the Firstbuy housing association landbank to meet current and future demand for FirstBuy properties

Local authorities will be asked to transfer land to the FirstBuy Housing Association landbanks to meet present and future needs for low cost housing. This will be key to meeting the target of 100,000 new builds per year.

FirstBuy housing associations will be allowed to ‘reserve’ some Firstbuy properties areas that fall due for resale for local young people from established local families to help preserve the character of local communities.

This extends the concept of reserving social housing for young people from local families introduced in LocalLet programme to the some of the ‘stock’ of FirstBuy properties in any particular area to help extended families stay together.

Closing Remarks

There was a housing shortage at the end of the second world war due to the large number of residential properties that had been bombed. That was resolved by turning to prefabs. Prefabs were supposed to be a temporary solution but many were still in use 40 years after the event. Some Prefabs suffered in reputation due to the quality of the build and the functionality of the design but most were highly sought by the war generation.

The world has moved on since the prefabs of the 1940’s and 50’s. Modular homes now win awards for their design, build, quality and energy efficiency. Completion within a month of breaking soil is not usually. Mortgage companies are content to provide funding for this type of property.

Simply trotting out the old chestnut of building ‘x’ new starter homes at each general election does not address the underlying problems as anyone who has witnessed these pledges come and go will testify. We need a scheme that is affordable for low income young people and addresses their aspirations as well as the hopes of their parents. The scheme needs to be sustainable for future generations.We need to recognize that first time buyers are increasingly unlikely to be able to afford both the freehold and the property value and respond accordingly

We need to embrace modular homes in the UK like they do in Scandinavia and Germany if we are to solve the crisis in affordable social housing for present and future generations of young people on low incomes.

Old problems will not be solved with old thinking.

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