Financial Markets: Stability

Lord Best Excerpts

Thursday 3rd November 2022 Lords Chamber

[Lord Best (CB)]

My Lords, I thank the noble Lord, Lord Sharkey, for initiating this debate and for his excellent opening speech. My contribution will seek to identify actions which the Government could take to avert an ever-worsening housing situation and even extract something positive from the instability in financial markets which has led to higher borrowing costs.

First, to prevent a spate of repossessions—with the misery and huge cost of families being made homeless—there needs to be a robust safety net to meet the inevitable rise in home buyers running into serious mortgage arrears. In response to the 2008 global financial crisis, the Government introduced an improved income support for mortgage interest scheme. However, help was much diminished in 2018. On 9 June this year, the Prime Minister’s office announced a new plan to support homeowners which would strengthen protection at this time of other cost of living increases, but no further detail about these proposals has been given since. Can the Minister say when it is expected that the Government will take this forward to avert a serious outbreak of mortgage repossessions and homelessness?

Secondly, turning to new housebuilding, Secretary of State Michael Gove this week re-established the Government’s target for the construction of 300,000 homes per annum. This has sent out a signal that the Government believe it is essential to ease shortages and improve affordability by stepping up housebuilding. But, sadly, it will be harder to achieve this target with the rise in borrowing costs. Housebuilders are likely to sit on their hands rather than build more homes when costs are higher but prices may be falling; when there will be far fewer first-time buyers able to afford the new mortgage costs; when Help to Buy subsidies are finishing; and when deep uncertainty about the future will hold back potential purchasers.

The benefit which society can salvage from this predicament could come from a boost in the supply of new social housing, with support for the acquisition by social housing providers of sites or not-yet-finished developments. Not for the first time, this would keep the construction industry going through hard times and prevent a construction-led recession while achieving a real increase in desperately needed affordable social housing.

Thirdly, turning to the private rented sector—I welcome the helpful contribution of the noble Lord, Lord Young of Cookham—the hike in borrowing costs will now affect thousands of landlords. The number exiting the market has already been growing following less favourable tax treatment and necessary new and forthcoming regulatory changes. Two-thirds of the country’s 2 million landlords who have buy-to-let mortgages will face the higher costs of borrowing alongside higher costs of management, maintenance and new energy performance requirements. Very few will be able or willing to pass on all these extra costs to their tenants, not least since some tenants are already paying half their income in rent. So a greater exodus from the private rented sector can be predicted, with dire consequences for those already struggling to find rented accommodation.

This is not necessarily a disastrous phenomenon if struggling landlords are enabled to sell to social landlords—local housing associations and community-led housing organisations—which can modernise and re-let the properties as secure, affordable homes with low energy costs. The 2021 Affordable Housing Commission, which I had the honour of chairing, proposed a national housing conversion fund of £3.5 billion which could, with the usual private financing, achieve this switch for many thousands of properties. Will the new levelling-up funds open up this powerful route to addressing poor conditions and fuel poverty in the private rented sector, regenerating neglected areas, reducing the escalating housing benefit bill, saving NHS and social care costs and helping with net-zero targets?

I encourage the Minister to pass on to her colleagues Churchill’s wise advice: “Never let a good crisis go to waste”.

Budget Statement

Lord Best Excerpts

Wednesday 25th March 2015 Lords Chamber

[Lord Best (CB)]

My Lords, I think that I am going to make myself popular, being speaker number 25 and being able to say that the words of wisdom that I have carefully crafted have already been spoken by one or other of your Lordships this evening, particularly perhaps by the last speaker, the noble Lord, Lord McKenzie of Luton. He is an expert on housing matters, and it is housing that I was intending to address. Perhaps I may give some extracts from my speech that will give its flavour.

The headline in last week’s Inside Housing, the award-winning magazine for those in the world of housing, read:

“Sector dismay after Budget ignores supply”.

The Budget came less than two days after a huge rally at Westminster Central Hall, which called for “homes for Britain” and the ending of the housing crisis within a generation. The anxiety now is that the Budget’s principal measure for housing, the Help to Buy ISA scheme, will promote demand, with a grant of £3,000 for first-time buyers who save £12,000, but there are no measures in the Budget to increase the supply of new homes.

The Budget’s small print has some positive messages for housing: an increase in the number of growth areas, where development of brownfield land gets a boost, although there are no new funds for these areas; a London land commission to map sites and more powers to the London mayor; a feasibility study on progressing large-scale projects promoted by local authority partnerships; consultation on more effective use of compulsory purchase powers, which are such an essential tool in securing sites; and a feasibility study on boosting self-build and custom housebuilding. That is all good stuff but declarations, maps, consultations and feasibility studies do not in themselves build houses.

Two realistic options exist to crank up housebuilding to a level approaching that of times past: reviving council housebuilding and expanding housing association output. Many local authorities are raring to go, with the capacity to borrow and the willingness to work collaboratively with partners. Their borrowing, even though it can be safely and prudentially repaid from rents and sales, currently counts against the deficit in the UK. It would not do so if accounting practices used in other EU countries, and by the OECD and the IMF, were adopted here. Government must be braver in going for a change in the definition of public spending that would allow councils that are willing and able to do so to use their huge assets to get back into some serious building programmes.

Then there are the housing associations. The Chancellor found the £2 billion in the Budget for Help to Buy ISAs. That same level of investment, as spelt out by David Orr, the chief executive of the National Housing Federation, would enable housing associations to build 69,000 new affordable homes. Doubling that investment—enough to create around 140,000 extra affordable homes—would be a real response to the crisis in housing supply hitting our children and grandchildren. Can we hope for this in the next spending review?

Pension Schemes Bill

Lord Best Excerpts

Monday 12th January 2015 Lords Chamber

This is such a high-stakes decision, with lasting consequences for individuals and their families, that I think some additional measures are necessary. Indeed, similar measures already apply in the case of many routine and far less significant purchases that people make. Will the Minister assure us that both the Treasury and the FCA will be made to work more closely together to ensure that a seamless information and guidance process comes into existence, for the benefit of all consumers? I beg to move.

[Lord Best (CB)]

My Lords, my name is down in support of these amendments from the noble Baroness, Lady Greengross. I declare an unremunerated role as a member of the Equity Release Council’s advisory board, and I speak particularly as chair of the All-Party Parliamentary Group on Housing and Care for Older People. I shall concentrate on the interrelationship of advice about pensions and advice about the use of capital assets to fund one’s retirement.

I strongly support the case made by the noble Baroness that the advice provided by Citizens Advice and the Pensions Advisory Service, under the guidance guarantee introduced by the Bill, should ensure that an individual’s assets, particularly their housing wealth, are taken into account properly. The resources in an individual’s pension pot—their defined contribution pension savings—account on average for around £20,000, which represents only some 4% of their total wealth, compared with over £270,000, 55% of their wealth, which is held in the equity of their home after deducting any outstanding mortgages. Four per cent of wealth in their pension savings and 55% in their property—talk about the elephant in the room. It seems essential that in these important advice sessions attention is drawn, where relevant, to the individual’s wealth bound up in their property, which of course can be turned into cash, either by downsizing to a cheaper home or through an equity release product.

When thinking about buying annuities or choosing other investments, it is extremely important to consider holistically one’s wealth as a whole. The DWP Minister in the other place Steve Webb has agreed that advisers, under the proposed arrangements as spelt out in the near-final version of his department’s rules for giving guidance, should ask whether the consumer is an owner-occupier or a tenant and should ask, perhaps a bit vaguely, about personal circumstances. However, the rules for this interview do not include any explicit reference to housing wealth.

Amendment 35 would make clear that the guaranteed guidance from Citizens Advice and the Pensions Advisory Service should include prompting individuals to look carefully at their housing assets. Without the guidance pre-empting the professional advice of an independent financial adviser, this should be the moment when the interplay of housing and pensions gets aired. Those fulfilling the guidance guarantee should help consumers ask the right questions of an independent financial adviser.

The All-Party Parliamentary Group on Housing and Care for Older People, supported by the think tank Demos, published a report at the end of last year on affordable downsizing. It called for new measures to assist those in their extended middle age who want to move from family housing to a tailor-made apartment or bungalow. Such moves, as well as preventing and pre-empting problems in later life, have very positive financial effects with savings in fuel bills, maintenance costs, garden upkeep and the rest. We also noted the complexities involved in the financial aspects of trading down or equity release. We called for a “help to move” package comprising access to equity loans for movers, as for young people through the Help to Buy scheme, plus concessions on stamp duty, which were partly answered by the Government’s reforms of that tax, and, very importantly, guaranteed guidance on the financial arrangements, piggybacking on the pensions guidance featured in this Bill. These amendments would use the guidance guarantee that covers people’s defined pension contributions to draw attention to bigger questions relating to other assets, particularly housing wealth. They would make the guidance sessions much more meaningful in a country where 14 times more of our wealth in older age is tied up in our properties than in our pension savings. I support the amendments.

Banks: Bridging Finance

Lord Best Excerpts

Monday 20th October 2014 Lords Chamber

[Lord Newby]

There is a problem with how banks deal with older people who are looking to move, but it has nothing to do with bridging finance in most cases. It is simply about transferring the mortgage from one property to another. The mortgage market review suggested that banks should have some discretion in those circumstances so that people would be able to remortgage on the same terms that they had before, but unfortunately, as in a number of other cases, the banks are interpreting this in a very rigid way, which is undoubtedly disadvantaging some people.

[Lord Best (CB)]

My Lords, will the Minister look out for a report on affordable downsizing, due to be released on 19 November by the APPG on this subject, which I chair? Will he note in particular the central recommendation that, like the right to buy for young people, we get a right to move for those of us in our extended middle age?

[Lord Newby]

I certainly look forward to reading the report. I will be fascinated to see how that right might be translated into reality for a lot of people, but some local authorities are beginning to look imaginatively about how you help people to move. Very often, one of the big problems is just the physical challenges of sorting out the move, switching the bills and so on. Redbridge, for example, and a number of other authorities have started to provide a service to people who wish to downsize, to help them with all those mechanical arrangements which, for some people, prove to be the last straw in stopping them from downsizing.

Welfare Benefits Up-rating Bill

Lord Best Excerpts

Monday 11th February 2013 Lords Chamber

[Lord Best]

My Lords, my contribution to this debate considers the implications of the Bill for the nation’s housing. However, in the wider debate I align myself firmly with those who believe that there are better ways to reduce the national deficit than by cutting living standards for the poorest. For example, I note the announcement today of the Government’s intention to raise more funds—that is, more than were previously planned—through inheritance tax. I have made my own proposals in this House for other measures that would spare those on the lowest incomes; for example, by reducing the non-means-tested single person’s council tax discount, rather than reducing council tax benefit for current recipients. I do not enter this debate with the belief that cuts to the incomes of the very worst-off are an essential part of deficit reduction.

Turning to housing matters, I shall highlight three ways in which housing will be affected by the 1% limit on benefit increases. First, the new 1% cap on increases to local housing allowances—the housing benefit for private sector tenants—will accentuate the reluctance of landlords in the private rented sector to offer new tenancies or renew existing tenancies to those who rely on benefits. The new cap on rent increases on its own might not look significant but we have seen a succession of limitations on local housing allowances and another one is bound to affect landlord attitudes.

If the landlord puts up the rent by more than the 1% limit for the local housing allowance, the shortfall for the tenant to make up—the gap between the actual rent to be paid and the amount received by way of the allowance—will widen, taking more out of the tenant’s meagre income that is needed for other costs. Of course, as landlords will note, these extra pressures on tenants’ incomes make rent arrears more likely. The last thing that these landlords want is the hassle and expense of evictions. I was glad to note the special help through exemption from the 1% LHA cap for areas with the highest rents. But, because of the reductions to other benefits, a household in London is still likely to lose more than £500. This obviously increases vulnerability to getting into trouble with rental payments.

The Government had hoped that the caps and ceilings they have already applied to their support for housing costs would lead to private landlords lowering rents accordingly. But in most areas—very prominently in London and the south of England—rents have gone up instead. Last year, they increased by 7% in London and 3.4% across England and Wales. Landlords have been able to charge these rents because they can let to tenants who are not in receipt of benefits. Because so many new households in reasonably paid jobs are now unable to buy, landlords in much of the country can choose to take in these better-off homeseekers in place of those who need benefits.

As rents rise and the incomes of those in work do not keep up, more working households are requiring help with housing costs. New figures from the Building and Social Housing Foundation show that the proportion of housing benefits going to people in work is rising significantly, and working households now account for 90% of all new claimants. Caps on local housing allowances, therefore, affect the hard-working families whom the Government want to protect. Discouraging private landlords from letting to those in receipt of benefits means more working households, as well as those without a job, being left with nowhere to go.

This brings me to the second likely effect of the Bill: the adverse impact on social housing. The decline in home ownership, and the resultant ability of private landlords to choose to house those on rather higher incomes, magnifies the importance of the social housing providers. However, I fear that the Bill—not on its own but, as in the private sector, in combination with other reductions in support for tenants—will make things more difficult. A large proportion of housing association and council tenants derive income from benefits due to fall in real value for three years. If the gap between 1% and inflation, particularly inflation of food and fuel prices, is modest, this extra burden may not be too disastrous; if the gap is wide, as the noble Lord, Lord Kirkwood, has set out, those affected will really be struggling by year three. Even so, the 1% uplift is unlikely to be catastrophic; rather, it is the cumulative impact of this latest cut, on top of earlier reductions in help, which is likely to be pretty devastating for several hundred thousand social housing tenants, and therefore for their landlords, too.

I detect a gradual awakening to the magnitude of the problem that one of these changes will bring. This is the “underoccupation penalty” for those deemed to have a spare room. I named this the “bedroom tax” some 18 months ago and, although these words have been strongly criticised, I stand by them. I will spare your Lordships at this late hour another analysis of the truly awful consequences for 660,000 social housing tenants of this penalty, levy or tax. However, already I note that this measure is, understandably but unfairly, turning tenants against their social landlords, who will be required to collect the bedroom tax next April at an average of £14 per week per household. The anxieties of these housing providers about their ability to extract the money from hundreds of thousands of tenants, some of whom may already be in debt, is compounded by the knowledge that the Bill will mean that the real income of many of their tenants is now destined to fall. Combine this with the impending imposition of council tax at 20% to 30% for the same people, and the financial position of social housing tenants, and therefore of social housing, looks increasingly fragile. Throw in the new regime for paying housing benefit in big monthly sums directly to tenants, who face horrendous choices in juggling debts and spending on very low incomes, instead of the benefit going straight to the landlord, and the risk multiplies that rents do not get paid.

To those social housing tenants struggling with these new burdens, including bedroom tax, council tax, and caps on other benefits, the Bill before us may be the final straw. If landlords take the strain because arrears mount, and evictions and emergency housing cost a fortune, the housing associations and local authorities will have less money to support their local communities; to do all the preventive work that helps families to get on; to regenerate the neighbourhoods where they work; and, which brings me to my final point, to fund their production of additional homes.

The final way in which housing is likely to be affected by the Bill relates directly to the commitment of the Department for Communities and Local Government to addressing the very reason why welfare expenditure on housing costs is so high and is continuing to rise, not fall. This underlying cause of the UK’s appalling housing situation, now affecting almost every household in their 20s and 30s, is the acute shortage of homes that they can afford. This pushes up prices and rents, absorbing disproportionate percentages of income in return for questionable quality.

Housing shortages push up the welfare bill and mean taxpayers having to subsidise more people and to higher levels than in our competitor countries. Each year, the UK’s national housing deficit—the accumulating gap between extra homes required and new homes built—is growing by more than 100,000. This has to be reversed and DCLG Ministers are determined to get more homes built. That policy addresses the cause of rising housing benefit costs rather than the Department for Work and Pensions’ capping of benefits, which treats only the symptoms and simply penalises the victims of housing scarcity. Regrettably, the Bill will make the task of DCLG Ministers more difficult.

Private sector housebuilding must be boosted, but even if housebuilders got back to building at the levels of the boom years before the credit crunch of 2008, we would still be constructing far fewer homes than the number of households formed annually and still be adding to the national housing deficit each year. It is essential that the social housing sector massively boosts its output. I declare my interests as chairman of the Hanover Housing Association and president of the Local Government Association and stress the value of councils themselves building more homes once again.

With a steady source of secure income from their rent rolls, social landlords can borrow at low interest rates and can grow significantly with only modest capital subsidies. The disruption caused by the forthcoming succession of cuts to support for their tenants will hold back this potential for growth. Social landlords are making much increased provision to cover expected rent arrears. This diminishes the resources available for new work. The loss of income also reduces the confidence of their private sector lenders and deters ambitious development programmes which the nation desperately needs.

This is not a good Bill for housing. Directly in the private rented sector and indirectly but very significantly in the social housing sector, this latest instalment in the cumulative impact on very low-income households is likely to mean not just personal hardship for tenants but a negative influence on the whole housing scene and an undermining of other government departments’ genuine efforts to tackle not the symptoms but the cause of this country’s immense housing problems.