Mortgages: Eligibility

Wera Hobhouse Excerpts

Monday 23rd October 2017 Westminster Hall

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I appreciate the work of the Petitions Committee and the hon. Member for Sutton and Cheam (Paul Scully) in particular in bringing this debate to Parliament. As a number of Members have said, this debate is important, and its tone chimes with the concerns a number of the constituents who come through my door and the people who talk to me have expressed about the housing market, so this debate was a good one to bring to Westminster Hall.

I will begin by discussing the issues facing young people in particular. The Chancellor has been making noises recently about trying to improve life for millennials—I hope he does—but I am concerned that he may think that the implementation of a railcard for under-30s will do it. I hope he will go much further, because a railcard will not cut it. A number of issues face millennials, who are people born between 1980 and 1995. They are up to 35 years old, although there are various definitions. In 2005-06, 24% of 25 to 34-year-olds were privately renting. That figure has now risen to 46%. In 2016, 59% of the households headed by millennials were privately renting.

The private rental market is expensive, which particularly hits young people, especially when we consider that young people born between 1980 and 1985 are earning £40 less, once adjusted for inflation, than those born 30 years earlier. It is a significant issue that they are having to put so much of their income into privately renting and are unable to save as a result. People talk about how millennials just sit around and do not do any work, but they work as many hours as previous generations did, but for less money. That is a real concern, especially given their outgoings.

Issues to do with the private rental market affect younger people, but they also affect people of all ages. The gentleman who organised the petition said that he spent £70,000 of his income on rent, and that money has not gone to providing a roof over his head that will continue to be a roof over his head, because his landlord could decide that he no longer wants to rent that property out. That generation do not have the security that previous generations may have had. In social renting, properties are much cheaper to rent than in the private rental market and people have a much better guarantee that they will be able to stay for the long term.

I have highlighted the specific problem facing millennials, but I want to raise a number of other issues. I read an interesting piece the other day about how it is not good to save at the moment. If someone puts their money in the bank, it shrinks simply because it is in the bank and interest rates are lower than inflation. It is difficult for people of any age to save, because their money will not make money. If someone wants a deposit for a mortgage, they have to have a chunk of cash, and they need more than they used to need, because the money will depreciate while it is in the bank. That is a real concern.

Another factor preventing people from building a deposit is low wages. There has been a real lack of wage growth. If we compare the position for non-retired households before the financial crash with their position now, such households are not earning more in wages than they were a decade ago. For folk trying to build up enough savings for a deposit, that is a major problem. There are a number of problems with how the mortgage market works and with access to mortgages. For a start, people need savings. I know that there are Help to Buy schemes. When we bought our house in 2009, we did it on a shared equity scheme, which was incredibly helpful. It was a developer-run scheme, rather than one run by any Government. It was very useful; it was the only way we could get on the property ladder in 2009, because we did not have enough savings. Those schemes do not operate across the board and not everyone has access to them. Young people in particular cannot access them all very easily.

I am pleased that Help to Buy schemes have been put in place by the UK Government and the Scottish Government. The Scottish Government have introduced a Help to Buy scheme with open market access to shared equity. The scheme is not just for new properties; it allows people to buy a property that is a bit older. It allows people on median incomes—not necessarily the poorest incomes—to access the housing market. Such schemes have been successful in Scotland and have had a positive effect in helping people to secure a house that is not necessarily new. Older houses may have more of a buying history, so they can be a safer bet because people have a better idea of whether the house value will depreciate in the near future, unlike with new houses, where people do not know whether they have been priced correctly.

The Scottish Government have done a number of positive things. Through their Help to Buy schemes, 23,000 households have been helped into home ownership since 2007. The open market shared equity scheme has received £70 million this year from the Scottish Government, so it is hugely positive. We will deliver at least 50,000 affordable homes in Scotland by 2021, and that policy has been backed by £3 billion.

One of the most important things the Scottish Government have done in the past decade is change the attitude to social housing in Scotland. We have taken a different tack from the UK Government. We have increased significantly the amount of social housing builds and have reduced the ability of people to buy their social house. I understand that the Conservative Government do not necessarily agree with that, but it means that we have been able to begin to build our socially rented sector back up. That has meant that more people are socially renting, and they have the ability to build up their savings pot as they are not paying unaffordable private rents. That is what my family did. We were in a socially rented multi-storey block and we were able to build up some money for legal fees and others things when we bought a property. Even if someone does not have enough for a deposit but can get involved in a shared equity scheme, they still need some money to put towards the fees. Those things are hugely positive, and the move towards more social housing in Scotland is a very good thing.

On the issue of creditworthiness, the hon. Member for Sutton and Cheam mentioned the Rental Exchange scheme by The Big Issue and Lord Bird, which is a genius idea. I cannot believe people did not think of it sooner, because it is a great way to ensure that social rent payments in particular are taken as evidence of creditworthiness. Evidence of creditworthiness is a real issue that has been touched upon by several Members. Having no credit score, or a low credit score, does not mean someone cannot afford to pay a mortgage. It simply means they have not built up a credit score. Peers of mine, for example, have had to take out a credit card to build up a credit score. We do not want people having to take on debt simply so they can get a credit score in order to get a mortgage in future. There are better ways to do that. The Rental Exchange scheme is brilliant, working with people on the lowest incomes, particularly those in social housing. It would be nice if even more social housing providers got involved in that scheme and it were widened out so that it can be accessed by more people, because it is hugely positive.

Other things around creditworthiness and the way that credit scores work are a significant problem. One Member mentioned the poverty premium and the additional amount of money that people have to pay as a result simply of having a lower income and lower savings. If someone wants to get a loan, they go to various websites to see how much they can get. All the websites provide an indicative rate, which is probably not what someone will actually get because the bank or institution will then offer something that it decides is the most appropriate thing.

To get a quote for an actual rate, the bank needs to do a credit check, which impacts on someone’s credit score, making it more difficult for them to shop around. The people on the very lowest incomes cannot go to three different banks and get three different quotes and then three different percentages for the £2,000 that they want to borrow to buy a new dishwasher, washing machine or whatever it is that they need, because that will have an impact on their credit score. There is an issue with the way in which credit rating agencies work because of the need for the credit assessments to have an impact on the score. In fact, it impacts most negatively on the people who most need assistance with finance and who could do with having a better rate because they do not have the ability to shop around. I know that is slightly off-topic, but I wanted to raise the issue in the context of creditworthiness.

I feel the frustration of the gentleman who started the petition, as do the 140,000-odd individuals who signed it, as well as thousands and thousands of people across the UK. If we look at the people who are young, who are around my age and who are millennials, I know many who have come to the conclusion that they will never be able to afford to buy a house. It will simply never happen because they will never have the money to do so.

If private rentals were more secure and affordable, there would be less of a problem but, because private rentals are insecure and rents are sometimes sky high and people have to pay a huge amount of their income on rent, there is a problem. People cannot even aspire to own their own home. Young people are criticised for spending too much money on coffee, and we regularly see a meme doing the rounds on Twitter: “We’re buying all the £3 coffees, because you’ve got all the £3 houses.” That sums up the frustration felt by young people. I am not saying that people who cannot afford mortgages should get mortgages, but we must help the people who can afford mortgages but who do not have the creditworthiness.

[Wera Hobhouse (Bath) (LD)]

The issue is not about encouraging debt, but about greater inclusion and affordability for young people, or for anybody caught up in this vicious circle of very high rents and squeezed budgets, which means they cannot save for deposits.

[Kirsty Blackman]

I absolutely agree with that point. In fact, some of the case I have been making is about the very opposite of encouraging debt. I want people to build up a more positive credit score without having to take out a credit card and make payments, because for some people that might be too much temptation. Positive moves could be made by the Government and credit ratings agencies to ensure that more people can get access to the finance that they need and can afford, rather than finance that is out of their reach.