Dear Candidate,
Since we unveiled our policies on housing I have received a large number of comments and queries and therefore thought it might be helpful if you knew how I was answering them.
SALE OF COUNCIL HOUSES
(a) Why should council tenants be allowed to buy their houses?
Everybody wants to own their home, because of the security and pride of ownership that a house-owner enjoys. Also, people who have bought their own homes have benefited over the years from increases in house prices—while people who have lived in council houses or flats have nothing to show for all the rent they have paid. Look at this picture of what has happened over the last 25 years: Council Tenant
Home Buyer
1947: Moves in
1947: Buys house or flat for £1,200
For 25 years pays rent starting at 80p per week, rising to £4 per week by now.
For 25 years makes mortgage payments of £1.20 per week—and pays no rent.
1974: Owns nothing. Goes on paying rent.
1974: Owns home worth £10,000—and no more weekly payments ever.
As you can see, at the start the mortgage payments were rather higher than the council rent, but over the years the rents grew to much more than the payments. And at the end of the day, the home buyer owns a £10,000 property outright—while the council tenant goes on paying rent for ever. [end p1]
(b) The price. ⅓ below market value. Is this justified?
Yes. We are selling to a sitting tenant who will probably stay there for the rest of his life. Many landlords in the private sector would not expect to receive as much as ⅔ market value if they sold under these circumstances. Further, there is a 5 year restriction in the event of resale. Only after 5 years has passed could the council owner retain all the profit. The justification from the ratepayer's and taxpayer's viewpoint is that he is already paying out revenue subsidies in respect of council houses, and would continue to do so if the house remained rented. Further, the maintenance costs are transferred to the tenant. If he becomes a home owner it is possible that his own family will then think of buying a home when the time comes, instead of going on to the council waiting list. Finally, bearing in mind that about 70%; of council houses were built before 1964, when building costs were very much lower, the buyer is still paying a lot more than historic cost, and the profit will accrue to the local authority.
(c) Can the tenant of at least three years' standing buy a different house from the one he lives in?
Yes. Some councils which have experience of selling council houses have already allowed this.
(d) Can those who have been residents longer than three years buy their homes for even less?
No. The same simple scheme applies to all new purchasers.
(e) Can those who have bought under previous schemes at say 10%; or 20%; off now have 33⅓%; off?
No. We cannot reopen contracts already made. But if those people bought some time ago they would still be doing well because the market value may have risen in the meantime.
(f) Does the scheme apply to flats?
Yes, on long leases.
(g) Does the scheme apply to New Town houses?
Yes.
(h) What can we say to sceptical ratepayers?
They will ultimately pay far less in subsidy to council homes through this policy than by going on building more council houses and retaining them all in council ownership. (See below for examples of cost of new council houses and the subsidies.)
9½%; Mortgage
(a) Can mortgages hold to 9½%;? Yes. We have done it before although by a different method. From March to June 1973 the rate was held to 9½%; (from 10%; to which it would otherwise have gone). The cost to hold down mortgages by ½%; per month is £5 million. The cost of bringing it down to 9½%; from 11%; would therefore be over £180 million a year, less the amount gained from the reduced tax relief on 9½%; as compared with 11%;.
(b) Would the 9½%; also apply to local authority mortgages?
Yes. Here the present mortgage rate varies according to the average interest rate on the local authority's pool of borrowed money. Some are still charging 8½%;, but others as much as 13%;. The amount outstanding on local authority mortgages is only about one-tenth as much as on building society mortgages, so the extra cost will probably be of the same order (say about another £20 million), less the sum gained from reduced tax relief as above. [end p2]
(c) Where will the money come from?
Earlier this year the Chancellor of the Anthony BarberExchequer announced the allocation of some £350 million extra for local authorities to buy up existing private houses and to build extra council houses. we shall stop further municipalisation and therefore reallocate the £200 million. We believe it better to use some of the further £150 million to help people purchase their own private homes rather than use it to build extra council houses. The cost of new council houses and the annual subsidies required are enormous. To take two examples:
(i) In London, according to figures given in a reply to a question in the Greater London Council on 23rd July the annual subsidy on a £10,000 council house is £1,105, and on a £20,000 council house, £2,400.
(ii) In Birmingham, a three bedroomed council house costing £13,000 (on latest tenders) would need an annual subsidy of £1,182 per annum. (Economic rent would be £1,482, but the rent actually charged £300.)
According to the Housing Research Foundation's report “Home Ownership for Lower Income Families” some three families can be helped towards home ownership for the same amount of money as it costs to subsidise one new council house. The report says: “On average each new council house now costs roughly £900 a year in subsidy from taxes and rates (including the subsidy from very old council houses). Subsidy given through the option mortgage scheme to each new owner-occupier is currently only about £255 a year. The tax relief, if this be regarded as subsidy, is about £280 a year. All these are first year figures. Both subsidy and tax relief will tend to diminish in later years as rents rise and capital is repaid.”
In a press release entitled “Cheaper to help 90%; to buy” , the Housing Research Foundation says: “It is now cheaper to help poorer people to buy their home than to rent. Currently each new council house outside London costs over £1,000 a year in subsidy from taxes and rates. Over 90%; of younger families could be enabled to buy for an initial cost that would be far less than this; there would be long-term savings, too. This is the central conclusion in a new computer based report which calls for a major shift in housing policies.”
The Deposit for First Time Purchasers
The problem with first time purchasers is that the amount they can get on mortgage is often less than the price of the house they want to buy. To help fill this gap we propose a Home Savings Grant Scheme.
(a) What does this mean in weekly terms?
If the first time purchaser saves regularly with a building society over a period of at least two years then for every £2 he saves the Government would add £1. There would be a top limit for savings of £5 per week so that the £520 over two years would attract a grant of £260. The savings would of course earn interest.
(b) Can both partners save and each get a grant?
Yes. If both partners saved they would both qualify for the grant. Their combined savings and grant could then amount to over £1,500 towards the deposit.
The policy to sell council houses at ⅔ market value, and the 9½%; rate mortgage, and help for the first time buyer, are being well received, and we must use them to the full. Unlike the Labour Manifesto, we have made very few promises and this gives full credibility to those we have made on housing and rates. I hope the information in this letter will help you in your campaign.
Good luck.
Yours sincerely,
Margaret H. Thatcher.