Theresa May finally scraps borrowing cap for councils

October 3, 2018 / Isla MacFarlane
Theresa May finally scraps borrowing cap for councils

Theresa May has announced that she will be scrapping the borrowing cap for local authorities, following long-standing cries from councils, housing associations and developers.

“There have long been calls for the scrapping of the borrowing cap which has significantly restricted the number of homes local authorities can deliver,” said Lovell’s managing director, Steve Coleby. “Today’s announcement is great news and we strongly welcome it as a move which will help address the profound shortage of affordable homes across the UK.

At the Conservative Party Conference, Theresa May said that the last time Britain was building enough homes – half a century ago – local councils made a big contribution. “There is a government cap on how much they can borrow against their Housing Revenue Account assets to fund new developments,” she said. “Solving the housing crisis is the biggest domestic policy challenge of our generation. It doesn’t make sense to stop councils from playing their part in solving it.

“So today I can announce that we are scrapping that cap. We will help you get on the housing ladder. And we will build the homes this country needs.”

This has been welcome news for industry players who have long fought against the borrowing cap. Lord Porter, Chairman of the Local Government Association, said, “It is fantastic that the government has accepted our long-standing call to scrap the housing borrowing cap.

“The last time this country built homes at the scale that we need now was in the 1970s when councils built more than 40 per cent of them. Councils were trusted to get on and build homes that their communities needed, and they delivered, and it is great that they are being given the chance to do so again.”

However, some may argue that the move does not go far enough. A new study from the Chartered Institute of Housing (CIH) has revealed that total right to buy discounts have climbed to £1 billion a year – leading to a net loss of some £300 million.

Cutting the discounts available could lead to an extra 12,000 homes being built a year, CIH has calculated. But the organisation says right to buy should be suspended altogether to stem the loss of social rented homes.

Right to buy discounts were increased to £80,000 – and £108,000 in London – in April 2012. Since then 69,467 homes have been sold while only 18,958 have been started or acquired to replace them.

CIH chief executive Terrie Alafat CBE said, “Not only are we failing to build enough new homes for social rent, we are losing them at a time when we need them more than ever. Our research shows that we lost more than 150,000 social rented homes between 2012 and 2017 due to right to buy and other factors, and that figure will reach 230,000 by 2020 unless we take action now.

“This new research reveals just how much right to buy is costing the public sector every year. Suspending the scheme means the government could invest the savings in more homes for social rent – which is often the only truly affordable option for people on lower incomes – and also in fairer and more cost-effective ways to help tenants access home ownership.

“We support the principle of helping tenants move into home ownership but it cannot be at the expense of other people in need. About two-thirds of the discount that a tenant who buys their home now receives is justified because they are sitting tenants paying sub-market rent. But one-third is an excessive discount, which if clawed back, would lead to more money coming to councils to build new homes.

“We know that the government is consulting on ways to make it easier for councils to replace the homes they sell under right to buy, which is welcome – but we still believe ministers should suspend the scheme to stem the loss of social rented homes and look at more effective ways to help people access home ownership.”

CIH director of policy and external affairs Gavin Smart, added that any new funding must also be invested in the right type of homes. He said, “If we are to have any hope of tackling our national housing crisis, councils must play a critical role and this move will help them reach their potential. But if course it’s not just a numbers game – we need to make sure we are building the right homes, in the right places, at the right prices. That’s why it is so important to give councils the tools they need to build more truly affordable homes for social rent.”

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