Right To Buy won't boost homeownership - Hometrack

Demand for RTB was “questionable” and financial advice was “vital” to any expansion of the scheme, Hoemtrack said in its analysis of government proposals.

It added only a small minority of eligible tenants would be able to get a mortgage, given that less than 20% are in full-time employment.

Hometrack noted that the Mortgage Market Review found that RTB borrowers are most likely to be in arrears or face repossession and said: “The need for proper financial advice and affordability assessments are vital if tenants are to take up the offer of RTB in a sustainable manner.”

The government’s plans are also unlikely to meet the promise to maintain supply by putting the capital raised from each RTB sale towards building a new house to ensure supply remains stable.

Hometrack’s analysis has revealed a significant shortfall between the average amount raised per sale and the cost of building a replacement home.

It estimated that, on average, 1.4 RTB sales would be needed to fund the cost of building one new home, with ratios ranging from a 1.1:1 rate in the North West to 1.6:1 in London.

Hometrack said: “It seems likely that extra subsidy in the form of development on low-cost public land will play a vital role in fulfilling this policy objective.”

In addition, government plans to increase the discount rate cap to £50,000 will still not be enough to make RTB affordable for tenants. Hometrack’s figures show that the national average discount now required by tenants is 40% or £50,800 and rises to as much as 58% or £128,000 in London.

Richard Donnell, director of research at Hometrack (pictured), said: “Overall, the government has taken a cautious approach with its proposals. The aim will be to generate as much capital for re-investment with as few sales as possible to erode the stock of affordable housing.

“The hope will be that qualifying households on higher incomes in higher value areas will generate the greatest capital without a major loss of stock.

“Yet these areas have the highest replacement costs, which raises questions on the reinvestment strategy for capital receipts.

“A higher discount is likely to see an increase in RTB sales but the real challenge will be ensuring a one-for-one replacement at a time when the pressure is to grow the overall stock of affordable housing.”