Use 'student loans' to fix the housing problem?

GreatApe

Currently we (via the student loans company) give out loans of about £60-80k for young adults to buy themselves a university education. £9.25k tuition & upto £11k maintenance per year. The loans are then payed off slowly as 9% on earnings over £21,000 . About 60% of the loans are not fully repaid because many students study subjects which do not lead to good jobs so they do not earn enough to repay the loans.

The proposal is to replace the student loans company with a young adults education and housing loans company.

The same £60k is offered to all young adults (say between ages 18-35) to be used either on an education or on a FTB house. If used to buy an education it is the same as now but if used to buy a house the loan is secured on the house and repayment of the loan is on the same terms. 9% above £21k earnings. If the house is sold or the person dies the government gets its money back in the same way a mortgage company would. The loans can be portable. The loans would be charged interest at CPI inflation. The loans can be used at any time to buy an education or a FTB house upto age say 35. The amounts should go up with CPI inflation. Less than 1% of the loans on the housing would not be repaid in full compared to 60% of the loans on university educations currently not paid in full.

For example in Birmingham a couple could decide to use their £60k each to buy a university education as is the case now or they could buy outright a 3 bedroom terrace with that combined £120,000. If they bought the house they would have no rent no mortgage.

Advantages:

Compared to student loans where 60% are not repaid in full, 99.9% of the housing loans would be paid in full so it is a lower cost to the country.

Young people home ownership rate would perhaps go towards 95%.

We would save a lot in lower future benefit payments as home ownership for the young would be >95% so no need to pay housing benefit for future renters. Probably also lower tax credits and other benefits and even lower pensioner credits in time (as fewer pensioners would hit retirement as renters)

It would decrease the gap between the rich and the poor

GreatApe

Some Q&As to hopefully head off some silly comments

Q: Wont lazy kids just buy a house and not try hard in life.
A: How is that worse than the same lazy kid spending £80k on a dance studies degree that we are currently willing to fund who still does not try hard in life but now we have to support them further with things like housing beenfits as they dont own a home

Q: Wont lazy people just get free housing?
A: Yes but they already get free housing via housing benefits be in in social or private rental if anything this is a more honest way to do it. Plus it is a loan which is repaid either via income over £21k at 9% or when the property is sold. It also gives them an incentive to take better care of the property and even themselves.

Q: Wont this add massively to demand as hundreds of thousands of young people all buy a home at once?
A: No because about 65% of young adults become homeowners anyway this might take it towards 95% so there will be additional demand for home purchases for owner occupation but there would be less demand from landlords as they now have fewer customers wanting/needing to rent privately. So long as they dont live less dense than the average 2.35 persons per property it would not add much to net housing demand. It adds to owner demand and reduces from rental demand.
There would be a small boost my estimate is less than 20,000 annually in that the young adults would probably move out of their parents homes sooner by perhaps averge 2 years sooner. But this is supposedly what we/government wants for younger people to become owners sooner. This additional 20,000 annual homes should be manageable. Home building rates have been increasing for the last 5 years or so.

Q: I dont like the idea of giving young people £60k each to use to buy a house!
A: But we already offer them £60k-£80k to buy an education where 60% of them dont even repay the amount back why not give them £60k to buy a house and get >99% of it back. Is it not better to give the young adults £60k (£120k for a couple) and that way they can start their life rent free a huge boost to their future economic fortunes rather than entering the world with a modern dance degree?

Q: Will the country not become stupid with far fewer university students?
A: The degrees that add value like medicine the hard sciences mathematics etc will still be in demand only the lessor useless degrees that add little to no value would be abandoned by the students

Q: Where will the money come from?
A: Same place as the money that comes for the student loans currently. Overall I see it saving a huge amount in the medium and long term.

Q: This is a bad idea I dont like it!
A: That is not a question! plus we already have the LISA which is a gift of upto £32k for young adults to buy their first home. Why not offer a loan of £60k were we will get >99% of it back rather than gift (mostly middle class) them £32k?

katebl

Why either an education, OR a house? Just like why should people have to choose either a house, a pension, or a child? Previous generations could have them all, why try now to maintain their standard of living they have become accustomed to by making future generations choose only some of the milestones?

Radical idea, let the housing market bottom out, no props, no interventions, then pie in the sky schemes like this won't be necessary

GreatApe

katebl wrote: »

Why either an education, OR a house? Just like why should people have to choose either a house, a pension, or a child? Previous generations could have them all, why try now to maintain their standard of living they have become accustomed to by making future generations choose only some of the milestones?

Radical idea, let the housing market bottom out, no props, no interventions, then pie in the sky schemes like this won't be necessary

They can choose both if they like. Spend £20k on the education £40k on the house or whatever ratio they opt for. The total sum is £60k they can split it as they see fit

As for your assertion that the previous generation had it better that is false. 50 years ago fewer people owned their own home and fewer people went to university.

Duckyduck

If you give everybody £60k towards a house then everyone can afford to offer £60k more. Therefore prices increase by £60k, benefiting those that already own property, doing nothing, in fact worsening the affordability issue.

GreatApe

Duckyduck wrote: »

If you give everybody £60k towards a house then everyone can afford to offer £60k more. Therefore prices increase by £60k, benefiting those that already own property, doing nothing, in fact worsening the affordability issue.

I am not convinced that will be the case. Overall housing demand does not increase much with this scheme. There would be an increase from demand for owner occupation but a decrease from demand from landlords.

Also as noted already we have the LISA scheme which gives upto £32k to young adults to buy their first home. Also this is a loan not a gift so the money is recovered.

DevilsAdvocate1

Duckyduck wrote: »

If you give everybody £60k towards a house then everyone can afford to offer £60k more. Therefore prices increase by £60k, benefiting those that already own property, doing nothing, in fact worsening the affordability issue.

I've actually seen this happen in my lifetime. When I was growing up it was rare for both parents to work. Mortgages were often offered on the higher income earner only. When we took out a mortage we were offered 3 times my husband's salary plus one of mine, even though we earned the same. The assumption was that I would give up work.

Now both incomes are taken into account as most families have both parents work. House prices have gone up massively. We paid around £68K for our house and its now worth around £300K.

Graham_Devon

ANY scheme which loans people money in order to afford another loan for a house has one outcome. Increased property prices.

While that's generally the aim of the OP, let's not pretend it's a good idea.

GreatApe

DevilsAdvocate1 wrote: »

I've actually seen this happen in my lifetime. When I was growing up it was rare for both parents to work.

That is simply not true nationally. If you look at the census data it shows women have always worked in large numbers in this country. My mother worked my grand mothers worked and my great grand mothers worked that was the norm.

Of course some sections of society like council estates perhaps it was more normal for women not to work but even then its probably a case of birds of a feather stick together that is to say it was confirmation bias you mother didn't work so she was friends with other mothers who didn't work and you think that was the norm when it wasn't

Mortgages were often offered on the higher income earner only. When we took out a mortage we were offered 3 times my husband's salary plus one of mine, even though we earned the same. The assumption was that I would give up work.

No the assumption or rather the fact was that the necessities like food cost a LOT more in real terms than today. With necessities like food and cloths etc a lot cheaper it makes sense that banks can now offer 4x joint mortgages. If for some odd reason food/cloths/etc prices went up 500% in real terms then the banks would return to 3-4x single income because that is all FTBs could manage mortgage wise if necessities went up 500% in real terms which is roughly what they were fifty years ago.

Now both incomes are taken into account as most families have both parents work. House prices have gone up massively. We paid around £68K for our house and its now worth around £300K.

The UK is many housing markets not everywhere is expensive. In most the country homes are still cheap in much of the UK you can buy a starter house and your repayment mortgage will be smaller than the rents charged by social housing providers that shows housing is not only affordable in those areas but cheap

GreatApe

Graham_Devon wrote: »

ANY scheme which loans people money in order to afford another loan for a house has one outcome. Increased property prices.

While that's generally the aim of the OP, let's not pretend it's a good idea.

Why would house prices go up when overall housing demand does not go up?

If say 100,000 more FTBs purchase annually but 100,000 fewer Landlords purchase annually the net change is zero to demand.

Young adults either need to rent or buy. Some 65% manage to buy as things stand today so its really the other 30% to take that up to 95% buying. That might seem like new demand it is new demand for owner occupation but its an equivalent fall in demand for renting.

Graham_Devon

GreatApe wrote: »

Why would house prices go up when overall housing demand does not go up?

Do you really want this explaining to you?

I mean, I'd be happy to, just wondering if you genuinely need it explaining.

As for your example, indeed...but what on earth makes you think landlords would stop buying? What on earth makes you think people only buy property to live in or rent out? Increasing prices mean people are happy to buy and leave empty or buy as second homes.

Have you thought any of this through? Or are you simply going to make up random scenario's to make your suggestion fit? If so, let me know and I won't get in your way.