Good morning and welcome to our joint session with the Treasury Committee to look at housing affordability. I am Florence Eshalomi, the Chair of the Housing, Communities and Local Government Committee; could our Ministers and guests introduce themselves, please?

I am Melanie Montanari, director of housing strategy and markets at MHCLG.

I am Lucy Rigby, the Economic Secretary to the Treasury.

I am Alanna Barber, deputy director of banking and credit at the Treasury.

Thank you for joining us this morning. House building and housing continues to be a key feature for this Government. Obviously, for that to work, we need co-operation between MHCLG and the Treasury, so we are grateful to have both Ministers with us this morning. We have a series of questions looking at some of the issues around your portfolios and briefs. To start off, Minister Pennycook, looking back to the 2025 Budget a few months ago, there was no new funding for house building or for dealing with some of the issues around housing affordability that we have heard about as a Committee. Obviously the Government have a massive and really good, ambitious target of building 1.5 million new homes. Are you confident that the Government can solve the housing affordability issues when there is no new money coming into the system?

Do you feel that those levers will be sufficient? You have the £39 billion over the 10 years, the national delivery fund, some of the things around the National Housing Bank, and the subsidy from Homes England; will all that achieve the big, ambitious programme you have?

The really important thing on the National Housing Bank, as well as the funding, is the flexibility that the financial transaction control framework brings—to use the money flexibly across years and to bring inward investment; we expect more than £50 billion of private investment to come in as well. So that money is to enable the unlocking of wider investment, which is crucial to delivering our objectives.

Can I ask the Economic Secretary for her perspective? In terms of the amounts of money that the Housing Minister has just outlined, what is the Treasury expecting those sums to deliver?

Fundamentally, we are expecting them to deliver more houses. That is obviously not the sole element of the Treasury’s work; we have been working hard to make sure that there is demand as well as supply by trying to ensure that mortgages are more affordable for people, and helping people to save for deposits. There are a range of ways we are working with MHCLG and across Government to ensure that we get more first-time buyers on to the housing ladder and that houses are more affordable—essentially more people right across the country achieving the dream of home ownership, which unfortunately has been out of reach for too many for too long.

There will be questions on that later but, in terms of more housing, have you set specific targets for each year? What kind of metrics does the Treasury have to evaluate how well the housing Department is delivering for the money that you have allocated?

The Treasury does not have a specific target—although my officials will correct me if I am wrong. If there are targets, you would not necessarily expect the Treasury to have them—I think they would be in the domain of MHCLG. However, as I have said, we are working very closely to make sure that we have both supply and demand. Both those things must be in balance, otherwise the housing market becomes overheated and fundamentally we do not achieve what we want to, which is more people on the housing ladder.

I am sure that you would not have allocated £39 billion without an expectation of a certain number of houses to be delivered.

To be clear, the targets will follow the bids—it is about what is possible.

If I understand correctly, the Treasury has allocated a specific sum, which was set due to affordability rather than to aim for a particular number of homes. Were there any particular areas of contention between the two Departments at the time of the spending review?

Just say yes.

I hesitate, because I was not in post, Dame Harriett—[Interruption.] Alanna says that my officials did not have sight either.

The ongoing discussions at official level do not stop with the announcement of the overall amounts of money. We have detailed business cases on the detail, and Treasury officials are closely involved in and provide helpful scrutiny and challenge through that process.

Mr Pennycook, you, your Secretary of State and your previous Secretary of State have been challenged by our Committee about benchmarking and how you are going to get to the 1.5 million homes. Building on the previous conversation about the £39 billion from the Treasury, will our Committee get sight of what benchmarking you are looking to achieve so that we can track whether your Government are on track to deliver the ambitious programme that you have set out? The frustration we have had in previous Committee meetings is that the soundbite of 1.5 million homes is ambitious and we support it, but we have yet to see any detail behind that to challenge and be critical friends on that basis.

For the simplicity of the Committee, can you get your officials to send us where we should be looking to track the 1.5 million?

Yes.

I am not letting you anywhere near my phone!

Going back to the question I was meant to be asking, Minister Pennycook, do you have everything you need from the Treasury to achieve what you need to as a Department? If not, now is your opportunity to nudge your Treasury colleagues.

So you do not need anything from the Treasury.

I just want to go back briefly to what you said before and check that I have understood it clearly. You said that the ambition of delivering 180,000 homes for affordable rent as part of the programme was the target, but that it is now subject to the bids that are received. Or is it a requirement of the bids to still achieve that number? Is there a risk that we see a reduction in the number of homes delivered for affordable rent because of the bid process, and what has been learned in recent months?

Moving on to house prices, you were recently in an article in the Financial Times, Minister.

Obviously, the dream of home ownership for young people has receded over the last 15 years or so. We have seen house prices consistently rise faster than incomes. As the Chair has said, Minister Pennycook, you have been on record recently in the Financial Times saying that, as more units and homes are built, you think house prices will gradually come down. Do you have a target for that? Do you expect them to come down sharply? What are your objectives?

Do we expect that to significantly increase affordability for the young people who really need to get that step on to the housing ladder soon, if possible?

One of the things we track is the prices to earnings ratio, which has slightly improved in recent times, but obviously we are supplementing that through changes on the mortgages side, shared ownership and other interventions to drive that further. These are big structural changes that take time to work through.

One of the obvious other issues with regards to some of the help to buys and 95% loans is people falling into negative equity. That could be a big issue, especially for first-time buyers. Is there a risk, and what will the Government do to address that if we see that pattern coming forward?

There are plenty of safeguards in place to make sure that lenders have to act in consumers’ best interests, not least the consumer duty. The flow limit is important here, as is the work that has been going on by the PRA, the FPC and the FCA. There are plenty of safeguards in that area, but it all links back to the previous point that was being made about affordability. We have seen house prices gradually rising and very tight mortgage regulation, which has meant that far too many people have been squeezed out of the housing market, particularly the younger generation. The changes that are being made to mortgage rules across the piece make sure that there is a greater variety of mortgage products available, and we are seeing some really good innovation in that area. Importantly, mortgages are becoming more affordable and that is part of what is driving housing to become more affordable as well. Minister Pennycook rightly referred to the house price to earnings ratio which, for first-time buyers, is lower than the 20-year average at the moment, according to the latest figures from Nationwide. So things are heading in the right direction for the purposes of more first-time buyers getting on the ladder.

More affordable? An average first-time buyer in my constituency would need a minimum of around £100,000 for a deposit. In what way is that more affordable, Minister?

There is variation in different areas of the country, not least because house prices are different in different areas. Indeed, what constitutes affordability is disputed, or there are different measures of that. There is also obviously a difference between mortgage affordability and housing affordability, but on housing affordability, as I said, the moves are going in the right direction. In the most basic definition of affordability, I would suggest fundamentally that what we are talking about—I suspect many on the Committee would agree—is people on typical incomes being able to secure a decent home. That is basically it. Are we where we need to be yet? I would argue no, but the point I am making is that things are heading in the right direction because of the changes that we are making, both to supply, which is obviously predominantly the purview of Minister Pennycook, but also in relation to demand and both mortgage and housing affordability.

We will come back to that.

We are now in an era where a lot of the people who would normally be expecting to buy their first homes are also repaying their Plan 2 loans, their student loans, and often at quite high rates. Has the Department looked at what impact the student loan system has on affordability for people buying their first homes in this period?

That is a very good question. Not that I have come across, but I turn to Alanna.

I do not think there is any specific analysis on that point but, in general, if people have less disposable income after they have paid various charges, they will have less money available to contribute towards mortgage affordability.

If we were to write to you, would the Treasury look at that, on the back of Chris’s point?

It is a very good question, so yes, absolutely.

Minister Pennycook, you mentioned the impact of new homes and supply bringing down prices. How many homes do you think would need to be built for that to start taking effect? Can you quantify—if not necessarily down to the single home—where you think the balance tips into more affordability?

Moving to the mechanics around builders and developers, what do you think we need to get things going a bit more, because it is a bit slow?

The Government’s role in trying to get the mechanics going.

On council housing, what is the role for local authorities to speed things up a bit, given that we are already nearly two years into the Parliament?

The figure of £9 million out of £39 billion is quite a small quantum—

It is still a small number compared with £39 billion.

You mentioned your Financial Times interview, in which you criticised the current business model of housing developers. You said that it “does constrain supply” because they “can’t afford to build and sell homes too quickly”. Do you want to expand on that point? How much of a problem is their business model, and how do you ensure that they continue to build while doing the things you need to do to change it?

One of the issues raised is the absence of what they say is a first-time buyer scheme for the first time in 60 years. How much do you think that is true, and what is the rationale for not having one? Is it because you believe it will feed into higher prices?

I just wanted to touch on the point you made about how we have never really built at scale without the support of local authorities building directly. I wonder if you could help me to step back a bit. If you look at it from a whole-of-state perspective, the maths is very clear. Let us say it costs—I am making these figures up—£250,000 to build a small family home. If you get the rental income over 50 years, it pays for itself. Once you take into account housing benefit going out from the DWP as well, the maths gets even simpler. So from a whole Treasury perspective, allowing local authorities to borrow to build is a no-brainer, but the housing revenue account system is not delivering on that front. Ms Rigby, do you do that kind of whole-of-state perspective when calculating how much you allow local government to borrow to build?

Again, it is a good question. I am afraid I was not involved in the last bit of the spending review.

Apologies, but I did not have sight of the last bit of the spending review either, because of where I sit in the Treasury. Perhaps we can follow that up in writing.

Obviously, money comes out of the state via housing benefits to private landlords at the moment, at scale. If you take that into account plus the rental income you could receive from a social housing tenant, does that get taken into consideration when you think about how much capacity local authorities should have to borrow to be able to build more social homes over the long run?

In the absence of any other answer, I would imagine that it does, but I suspect it is probably best if we write to you to confirm exactly how it is taken into account.

Minister Pennycook, do you have anything to add?

Is that because of the fiscal point that you just mentioned? Obviously, the interest often comes out of the day-to-day revenue expenditure of a local authority. A lot of them are carrying deficits in their HRA, because of all the increases in maintenance and building safety, and so on. Are those existing debts what is holding them back? Do the Government need to intervene to do something about that?

On that point, Minister Pennycook, there are some councils, such as Hackney council—my council—that are building council homes, but, as you say, lots of councils do not have architects, departments, the skillset, the direct labour organisation or even the ability to procure. Are you looking at encouraging councils to group together so that you have a lead council with experience that could help to hold the hand of a council that wants to invest the money in developing council housing in its area? Is that on the cards?

They have all got that cue now from you. In response to Mr Dean, Minister Rigby, you could not answer some of the detailed questions, but the Chancellor has been very clear that she wanted to borrow to invest in infrastructure. One of the best value-for-money bits of infrastructure is social housing, according to MHCLG’s records. In some respects, spending to save is a bit of a challenge for the Treasury over the long term institutionally, but is that being considered at all? Is it on your desk? If it is not on your desk, where else in the Treasury is that being talked about? If people have a stable roof over their heads and an opportunity to live where they can work, that can be very good for the economy.

I agree. You are absolutely right that it is not on my desk. The bits that sit on my desk relate to financial services—so everything around mortgages and, as I mentioned, the piece around helping consumers save for a deposit. But yes, clearly investment in all forms of infrastructure is something that sits in the Treasury.

Under the PSNFL rules and so on that we have talked about on the Treasury Committee, was there, or is there likely to be, any discussion to allow councils to borrow more? Obviously, borrowing is high, and we know there are challenges, but is that a prospect?

Again, you will have to forgive me because that is not directly within my portfolio, but subject to Alanna saying something, we will add that to the letter we will write to the Committee.

On whether the PSNFL arrangements are helping, the National Housing Bank specifically has £2.5 billion for low-interest rate loans to support RPs, which is an example of how we are using the flexibilities in the new fiscal framework to support cheaper lending to the RPs, so they can build social housing.

I have a few questions. The first couple are for you, Matthew. Considering the Government’s commitment to build 1.5 million homes, how many homes need to be built by the end of this Parliament to have a noticeable effect on affordability? To reach your target and improve affordability, do we need local authorities to build homes? If so, how many?

The specific is that I think we are after numbers. You said that this is going to have an impact on affordability. Is it going to freeze prices? Is it going to have a 1% or a 10% reduction? What assessment has the Department made on what it will be? For local authorities, what number do you need them to do?

I suppose a question for both Ministers, following on from Bobby Dean’s questions about the HRA. Minister Rigby, you said that you are not aware of that detail. That makes me wonder whether you think that the Public Works Loan Board and the monitoring of HRA should be transferred fully to MHCLG to ensure that that Department can fully own and encourage house building. Can you also explain why the discounted rate of HRA borrowing has been extended only for one year, when we know how helpful that will be for building social homes?

From my point of view, it is not indicative of anything other than that it sits within the Chief Secretary to the Treasury's portfolio rather than my own. As I said, I am more than happy to write to Mr Dean, to cover off Dame Meg’s question as well.

You said that councils need certainty to borrow, but that you have not given them an offer. That does not help them plan, and it suppresses their ability to deliver social affordable homes. When will you decide to extend the HRA discount rate?

Going back to affordability, there is a slight difference between what the ONS says about what is affordable—less than five times average local income—and what the national planning policy framework says, which is that it should be 20% below market rate. Could you talk to why the NPPF is different to the ONS’s version of affordable?

My challenge is that the word “affordable” comes up whenever you or I are door knocking and speaking to people; the challenge is often that we are not building the homes that are actually affordable. When councils are responding and coming up with local plans based on the NPPF, there does seem to be a distinction here. Would it not make sense to look at how affordable is being defined in the NPPF, so that it is more linked to the ONS definition? Do you have any intention of doing that, or do you not see the merit of that?

An estimated 265,000 homes have been empty for more than six months. There is nothing more frustrating to a street than an empty property; it brings the whole street down and potentially turns into more than one. I am sure we have all had casework on those frustrating situations. I am interested to understand what you are doing to look at the viability of reducing the risk for councils to take on those empty homes and renovate them for social housing?

One specific area is the onus on councils to prove that they are empty, how high that threshold is and how challenging it can be to get over that. Will that be considered in this consultation, in terms of what you can change to make that easier, notwithstanding the resource challenges some councils might have?

I am sure we will come back to you on that as we progress with the inquiry. Minister Rigby, the Budget promised a consultation on reforming VAT to incentivise land development for social housing. Will the Treasury expand its VAT consultation to include equalising the tax treatment of retrofitting and new builds, as the Environmental Audit Committee has called for?

I am not aware that we have any plans to, but I can follow up. There was one tax point that I wanted to interject with in relation to what Minister Pennycook was saying earlier, which I think is important. Minister Pennycook was talking about how, when new properties are built, they get hoovered up by people other than first-time buyers. One of the changes that we made at Budget ’24 was to up the higher dwellings rate of SDLT by two percentage points. At the most recent Budget, we also introduced a new income tax on property income. Both of those measures—more so the former—help the position of first-time buyers relative to landlords, which I think is an important point. I did not want to interrupt Matt earlier, but I wanted to get that on the record.

It would be helpful to write to us about whether there is any consideration of that VAT review and, if not now, whether it would be in the future, given the opportunity for tackling this. Although it may be a small number, whether these sit empty or not is still a significant issue in communities. Back to you, Minister Pennycook: has the Department assessed the scale of residential property accumulation by foreign investors and the specific impact that is having on housing affordability?

I am not aware that there are very good data sources on that. We have market analysts who will look at the key investors and try to understand the picture. There is a difference between institutional investment that is supporting normal families being able to access housing, which we support and which is part of our objectives, versus the ownership of properties that are not being used as dwellings but just as an investment product. We do a bit of monitoring of that but, as I have seen, there is not a consistent data source that gives you a good picture other than essentially monitoring based on individual investors, which we do on an ongoing basis.

What would either of the Ministers’ messages be to those speculative investors who might be sitting on empty homes because they depend on the return on the capital value? Is there any message you would deliver to those types of, particularly foreign, investors at this time?

Just to add to that, one additional point that I should have mentioned is the added SDLT for non-UK residents.

It is worth saying that, for example, in the measure around overseas investors in relation to stamp duty, the Treasury’s estimate was that that helped 130,000 additional transactions for first-time buyers. These interventions can be really powerful for tipping the balance in favour of first-time buyers.

I have a quick question. Jumping back to the point on social housing mix, Minister Pennycook, you made the point that you could spend those S106 contributions, or all the contributions that you have for social housing, on a smaller number of units with more subsidy, or a larger number of units with less subsidy. It sounds like your push is for—though you wouldn’t quite frame it this way—a smaller number of units with social rent with a bigger subsidy. Why have you concluded that that is the better use of money?

Minister Rigby, I want to talk about mortgages. Obviously the FCA has loosened the rules on mortgage lending, and that has made mortgages more accessible. Do you have any indication of how that is having an impact on purchases?

As Minister Pennycook noted earlier, we have seen, over the course of the last year, more first-time buyers getting on the ladder.

That is first-time buyers, yes. Have you analysed it across the rest of the market?

There were round about 57,000 year on year in the time period that Minister Pennycook mentioned. With the FCA relaxing its rules following the mortgage review, 85% of the market have now adopted where the FCA suggests that they should be. On average, I think it is about 10% more that borrowers could borrow, which equates to about £30,000 based on looking back on the same income.

Sorry, is £30,000 the average across England?

It is an average buyer across the entirety of the UK.

Okay, that is an average. I represent an inner-city London seat, and a number of us around the table represent expensive areas where you would need more than £30,000 to make a difference.

It is 10% for a borrower on the same income, so a borrow who earned more would be able to borrow 10% more.

That is helpful. This has made mortgages more accessible, but has it done anything about affordability? You can get more mortgage, but does that mean that you are just over-indebting to buy the same property?

Because of what has happened to house prices and to more supply coming online, the fact of mortgages being more affordable, and in addition to what the FCA is doing, there is also the FPC’s relaxation of the rules when it comes to the high loan-to-value lending or the flow limit. As a package, we are seeing houses becoming more affordable—I referred to the nationwide measure of earnings to value earlier. But to the Chair’s point earlier, there is further to go.

Are you doing any analysis of the length of mortgage terms? I am thinking of people—young couples—with 37 or 40-year mortgages. Is that something the Treasury is analysing?

It has been trending upwards over the last few years. Somewhere here I have the latest figure, but it has been trending up; there is about a six-month increase every couple of years. The length of term is in the region of a 31-year average at the moment, but I would need to double-check.

That is an average. Have you done any analysis of whether new purchasers’ mortgage terms are significantly higher than those of people already on the ladder or people who were doing this 10 or 20 years ago?

Yes, sorry: first-time buyers’ average terms are trending upwards; new buyers are tending to borrow over longer terms.

Is there any analysis in the Treasury of the long-term public policy impact of the fact that people will be indebted longer and sometimes, if they are buying only in their 30s, well into retirement? Is the Treasury looking at that to make sure that we are guarding against any unintended consequences in the future?

Certainly the FCA are looking at that as part of their discussion paper; they published their response last year about what they are going to be looking at. They are looking at lending into retirement: retirement products, but also impacts of longer-term—

That wasn’t quite my question. It was about people who are borrowing now, on their income, over a 37 or 40-year period and so will still have those extant mortgages, potentially, into retirement. Is the Treasury looking at that, Ms Rigby, in terms of the support that the state should be providing? This is not just about your portfolio and those financial services products, but about the impact on people’s incomes into retirement and their ability to live off their pension.

I understand the question. Not that I am aware of, no.

Is it something you might want to take away and think about?

In addition to some of the other things that have been raised, yes. I have thought about it from the point of view of very long-term mortgages, which I understand are more available—or more common, I should say—in jurisdictions like the US. They are, as you know, available in this country, but as to the long-term impact on financial health, I am not aware of work that is currently ongoing.

My point is really that people can buy homes with easier mortgages, but does that mean it is actually affordable for them? Thank you for taking that away. I want to touch on the mortgage guarantee scheme. My simple question is: why bother? Given that Santander has a 98% loan-to-value offer and many others have 95% loan-to-value offers, why is the Treasury bothering with a mortgage guarantee scheme? I should stress that you made it permanent after an experiment or a temporary pilot by the previous Government.

Yes, we made it permanent in July—halfway through last year. I will explain the thinking behind that. Where the mortgage guarantee scheme becomes useful is in the event of an economic slowdown, where we have seen lenders take high loan-to-value products off the market. That is when a mortgage guarantee scheme becomes useful, because it keeps those kinds of products in the market. You rightly say that we are not in that position at the moment, and indeed we are seeing greater innovation in the mortgage market. You mentioned Santander and there are also other providers bringing lower-deposit products to market, which is a good thing. In those circumstances, an MGS is less useful, but I come back to the point that in the event of a slowdown, it will enable lenders to keep low-deposit or lower-deposit products on the market.

What contingent liability is the Treasury carrying on the mortgage guarantee scheme over this Parliament?

As to an exact figure, I am not sure, but I know that—

Or a ballpark figure if you cannot give an exact figure. I expect you could write to us—

It is important to say that where lenders do become part of the mortgage guarantee scheme, each mortgage is subject to the same affordability assessments and everything else. So this isn’t—

It is unlikely to crystallise, you think.

My point is just that this is not such as to mean that very, very risky loans are being made, because everyone is still subject to the same affordability criteria, but to answer your—

So you think there is not a chance of that contingent liability crystallising. Contingent liabilities are normal to see, but you think the risk of crystallisation is limited. You have done an analysis of that.

Obviously, the intention is to keep it as low as you possibly can, because as I said, the affordability assessments still apply. To answer your question directly, I do not have an exact figure for the size of that liability.

If you could supply both our Committees with something written, that would be helpful. You will have written, no doubt, to the Chair of the Public Accounts Committee about this, so perhaps Ms Barber could take that back and make sure that we see the same—maybe the Chair saw it, but I did not. It would be helpful to see that contingent liability. Alanna Barber indicated assent.

The other challenge here is that you have this mortgage guarantee scheme, but it does not apply to a lot of private leasehold flats. They are the new builds that are going up, in a lot of inner-city areas in particular. Why is that? Is that something you are going to consider changing?

The mortgage guarantee scheme can be used on new build flats—

But it is at a lower rate, isn’t it?

Not the mortgage guarantee scheme, no. It can be used at 95% on new build flats.

Okay. Thank you very much.

That was not the understanding of Pocket Living at one of our evidence sessions. They mentioned that no lender is providing that for new build flats. Are you now saying that the new scheme that the Government are offering will be applicable to new build flats?

It is true that not many lenders lend at 95% on new build flats. I believe that Santander is one of the major lenders that does, but it is true that many of them do not and that they will only lend at lower loan-to-value ratios on those flats. However, if lenders are part of the mortgage guarantee scheme and they choose to lend on new build flats, it applies to new build flats as well.

So it is if they choose to lend, not that they have to lend.

Yes. We do not prescribe what properties or borrowers lenders must lend to, but the mortgage guarantee scheme—

Are you concerned that there might be a reluctance to lend on new build flats at the 95% rate? If that is the case, how are you going to assess whether the mortgage guarantee scheme is working, because it would surely then increase the chance of a 95% or higher loan-to-value rate on leasehold flats?

As the Minister said, the market failure that the mortgage guarantee scheme is trying to address is an absence of 95% products in the market, so that borrowers can borrow at 95%, rather than making it particularly easier for a given property or borrower, if that makes sense. It is more that those products exist and that there is borrowing at 95% available on new build flats.

It seems that there might be dead-weight here. You have a guarantee scheme where they are already being provided but—I hear what the Minister says about future scenarios—we have a situation in many of our constituencies where the properties are blocks of flats, often leasehold, and there is a reluctance to lend at higher loan-to-value ratios. Clearly the mortgage guarantee scheme is not working for those, if that is not happening. Do you have any metrics to measure whether the mortgage guarantee scheme will encourage higher loan-to-value ratios on those sorts of properties?

I do not think we have metrics on that. As I say, we are aiming at—

You are not collecting data on how the mortgage guarantee scheme is working.

We are certainly collecting data on mortgages completed through the scheme, but—

Is that by type of property, as well as just raw numbers?

I will have to take that away. But the purpose of the guarantee scheme is not so much to encourage lending on new build flats as to encourage 95% product availability.

I think there is work that we may want to dig into further there, Chair, but thank you, Ms Barber.

Moving on, Minister Pennycook, a big issue that we have raised with you on many occasions is shared ownership. You know about some of the issues to do with staircasing and the selling on of properties. Does the Ministry have any proposals in terms of endorsing the shared ownership code?

There is a lot of concern among many Members, with shared owners feeling that the code lacks any meaningful teeth without Government endorsement. We know that the Housing Ombudsman is very supportive as well. There is a difference between being supportive and formally endorsing it and saying, “Yes, this is something I would want to see enacted.”

I want to ask about the shared ownership model. What thoughts do you have about, perhaps, decreasing the proportion that somebody is required to buy? Might that allow more people to step into home ownership?

From speaking to shared owners and providers, our sense is that the 10% entry point does provide the affordability. Some of the issues have been around the service charges and fees that come alongside that. As Minister Pennycook alluded to, our focus has been on making sure, through the social and affordable homes programme guidance and the prospectus—there will be more work to do on that—that there is more fairness and more affordability in those fees and charges. Hopefully, the combination of the 10% and more affordable, reasonable fees and charges will mean that people can enter the product.

Most of the problems seem to me to be around the whole issue of leasehold flats in London. Whether it is shared ownership or outright home ownership, the issues of service charges, management and all the rest of it run across that whole type of property. Back in the day, there was a notion of portable shared ownership, where you could identify an ordinary house in an ordinary street and possibly get shared ownership. Given the demand that lots of councils face for family-sized accommodation, is that something that you would consider? With that bit of help, via a portable discount to buy a house, there are families who could get on the first step of home ownership.

My understanding is that that product was a more private-market product, where people were provided a bit of a subsidy. I think that was the predecessor to what then became equity loan products, which obviously are not currently within the portfolio of products that the Government are providing. My recollection of the product is that it was less focused on new supply. Given the importance of building new homes, it feels right that our subsidy is going into new homes and affordable homes.

Sorry, Chair, but I have so many hobby horses that I am able to try out here. Given the reduction in the discount under right to buy, for all the reasons that you have described—there was a product, and I am trying to remember its name, where if somebody left their social housing unit to buy, they would get—

No, it was something like portable discount. If that helped you to buy, you could buy in the private sector, releasing the social housing unit. It helped a family to get on the ladder, and a property was made available for somebody else in need. Obviously, you would bend it towards the larger properties, which were what you were really looking for. It helped the type of family who wanted to move to the coast, or who wanted to move to another part of the country where house prices were far lower, and where they had family or work. It was a kind of win-win opportunity.

Matthew, you just alluded to how, when shared owners are staircasing, they have additional costs. One of those costs is having the property revalued each time they go to staircase. Newbury building society take a pragmatic view on that: they put a value on the property themselves, internally, and back themselves, which reduces the need for a survey. Would you encourage other building societies and lenders to look at that approach to see if it could work for their organisation to reduce that cost for individual shared owners?

But if you are doing smaller staircasing increments, that potentially means more valuations. To get the extra 10%, you are stepping through it five different times at 2% a time and you might need a revaluation at every 2%.

And for the very small staircases—the 1% increments—the need for a valuation has been removed, because often that was not cost-effective, but we will continue to look at the options.

Turning to the lifetime ISA replacement, I address these questions to the Economic Secretary. Given that the Government committed, in the Budget last year, to replace or refine the existing lifetime ISA, and given the latest UK house price index shows that the average price paid by a first-time buyer in London for a house is £477,000, and that we have seen a 35% increase in house prices since the launch of the product, what is the Government’s latest thinking on the cap for the lifetime ISA?

To go back to the thinking behind that. As you, Mr Glen, may or may not acknowledge—I am not sure—the LISA is not working as well as it could. From the way the Chair is looking at me, I gather this may have been covered in the recent report of the Committee, but perhaps not. Stakeholders have criticised the withdrawal charge in particular for being poorly understood, which has led to suggestions of mis-selling. In any event, because it is a dual-purpose product, the thinking is that we need to have something more specific for first-time buyers, so we are going to consult at the beginning of this year on exactly what that product will look like. To your question, I do not want to pre-empt the parameters of that consultation, including in relation to the cap.

I recognise the withdrawal penalties issue, but you are not prepared to say anything this morning on the cap, despite the clear evidence of what the average house price is in key areas like London. Surely it is now irresistible. The FSCS deposit limit increased to £120,000 just before Christmas, I think. That reflected inflationary increases over 10 years. Surely it is reasonable to assume that there will be an imminent announcement from the Government.

It is definitely right to suggest that we are aware of what is happening to house prices and of the utility of the current cap, but as I say, we will come forward with the consultation, and all the parameters of the new product will be within the scope of that consultation.

Can I focus on the withdrawal penalties? I believe that last year the Treasury took £75 million in withdrawal charges, which effectively tax the primary capital of young people. I assume that a Government like this would want to do the progressive and fair thing, so can we expect perhaps a bonus-only penalty? Would the Treasury be looking at that proposal?

What we are looking to do—I said that we acknowledge the way that the current product works—is to remove the need for the withdrawal charge, meaning that you can withdraw funds without penalty. You referred to the £75 million that HMRC has collected. That is absolutely right, but at the root of the problem—indeed, this is why we are bringing forward a new product—is the fact of the withdrawal charge not being particularly well understood, and people being surprised by it, which is not something we want to see in the design of any product.

Lastly, let me refer to the issue of the self-employed. The original design of the lifetime ISA was both as a product to save for a mortgage and then as something to be retained for supplementary savings. For the 4 million self-employed, who do not have auto-enrolment, the lifetime ISA provided a 25% bonus savings vehicle. If that element of it is withdrawn, and the lifetime ISA’s successor is only for saving for a deposit, does that not undermine the savings culture for that key group of the electorate and country?

No, I do not think so, because LISAs in their current form will continue. What we are saying is that you will not be able to transfer between an existing ISA and a new product, for the very understandable reason that you would get the double bonus, but we are being clear about what the new product will be for.

But if people are not already invested in the existing LISA, they will not have the option to have that savings vehicle, will they?

There are many other ways in which people can save.

But the self-employed will not be able to get auto-enrolment, will they? If they do not currently have a LISA, and your successor product stops the self-employed using it in that way, what will be the appropriate mechanism, without auto-enrolment, for them to gain that advantage of that aspect of the savings element?

It is certainly right that the new product will be geared towards first-time buyers, but, Alanna, I don’t know if there is anything— Alanna Barber indicated dissent.

I think we will have to take away the question you raise about the self-employed.

Thank you very much for your answers.

On mortgage finance limits and regulations, the Building Societies Act 1986 and the 2024 amendment Act gave the Treasury the power to lay secondary legislation to update the funding limit rules for building societies, but the statutory instrument to enact this change has not yet been laid. What is the reason for the delay, and when will the Treasury lay the instrument?

On the mutuals and co-ops piece of work more broadly, we have a clear manifesto commitment to double the size of the sector. That work is not only in the Treasury, but in DBT and other areas of Government, including MHCLG. The reason for the delay on the instruments—they will be coming forward shortly—is that, at least from a Treasury point of view, we have been focused on different areas of the mutuals agenda. We have been consulting on the reform of the common bond, which is important to allow for the strengthening and growth of the credit union sector. We are going to come forward with the proposals for reforming the common bond very shortly. To be blunt, it is a question of resource. Having said that, we have recently increased the amount of Treasury resource working on the mutuals agenda. I suspect that I may not need to rehearse the list of other work going on in this area, but it is a very important piece of the Treasury’s work, not least because we need to fulfil the manifesto commitment of doubling the size of the sector.

Can we expect that instrument to be laid in advance of the summer recess in July or after the summer recess?

We are aiming to lay those statutory instruments before the summer recess.

Under the Leeds reforms, the Treasury has pushed the FCA to simplify mortgage affordability checks, which is relaxing safety nets and increasing potentially riskier borrowing and debt. How concerned is the Treasury about arrears over the next 10 years?

It is important to emphasise the fact that there continue to be very important restrictions on how much consumers can borrow, and indeed how much lenders can lend. We are not talking about anything that resembles deregulation. As many have acknowledged, mortgage lending has been tightened at the same time as house prices have gone up. As we discussed earlier in the session, that has meant that fewer and fewer people are able to get on the ladder. The Government are very clear in our mandate to the regulators that we want to see regulation for growth across the board. The FCA and the PRA have come forward with ways to relax mortgage rules slightly. I come back to the point about all the important protections, not least the flow limit, which some people say should be abolished. That is not what is happening; the flow limit continues to exist. We have the consumer duty as well. There are very important safeguards in place. However, there is a fundamental point about a mortgage being a loan. When consumers enter a mortgage, they know that there are risks associated with it. You cannot fully get away from those in any situation. That continues to be the case.

The Government have announced a cap on ground rents of £250 a year, reducing to a peppercorn amount over 40 years. Minister Rigby, how did the Treasury assess the impact of these reforms on leaseholders and on the institutional investors and other ultimate owners of the freeholds that benefit from ground rent income?

You have just set out exactly the decision that has been made in this area. Both groups that you mentioned, including institutional investors and leaseholders, are important. From an institutional investor point of view, there is an extent to which you want to have certainty of income, and indeed everything else. We have been in discussions on this issue with MHCLG for a period of time. You set out the landing that we have got to: going to a peppercorn rent over 40 years and the £250 cap.

My question is more about how the Treasury made that assessment—quantitatively or otherwise—of the balance of impacts. In some ways, you are improving the income stream to leaseholders, who will no longer pay such onerous ground rents. You are reducing it for those investors who hold the ultimate freeholds. What quantitative, or other, assessment have you made of that balance?

As to exact figures, I am not sure. We engaged, as you would expect us to. In my role as City Minister, I particularly did so with institutional investors, who made their views known on the extent and nature of this policy, where they thought it should land and all the rest of it. As you would expect us to, we had discussions across Government on the right landing for this policy, balancing all the issues and interests, as we have to do.

What I am trying to get at is that whenever you—

Yes. I will just go back to Minister Rigby. Looking at the conceptual trade-offs there, £1 of ground rent to a freeholder could be redirected to the leaseholders paying the ground rent. In terms of striking that balance, were you concerned about systemic impacts, or was it simply a distributional question of who gets the money and relief?

Arguably, it can be both. From an institutional investor point of view—and as I said, we did plenty of engagement with that point of view—the important thing is the certainty of the investment environment. That has been the chief concern, and was the point being made to me. As I said, we had those discussions and came to exactly the landing that you set out.

To clarify, was the choice of 40 years, as opposed to a shorter period, an attempt to balance those two considerations?

Yes; that is what Mr Pennycook is saying.

I completely see that government is about making trade-offs, but it is helpful to know how much and in what manner those trade-offs are weighed when talking about the impacts to, say, residents in flats in south Reading who are paying increasingly high ground rents and getting into financial difficulties, versus those institutional and other investors who own those freeholds. It is interesting to see what the weighting is: which side essentially wins out? That is the purpose of this question.

Ultimately, we are one Government. We are committed to addressing unregulated and unaffordable ground rents, so that is what we are doing.

Minister Pennycook, an assessment was made by the previous Government in May 2024. The former Minister of Housing, assessing the impact of ground rents on different institutional investors, wrote, “Ground rents represent, at most, a small percentage of total UK pension assets.” Is that still your assessment today?

I think my leaseholders would agree with that. Moving on to stamp duty land tax, Minister Rigby. I appreciate this is a tax question, so I hope you can answer broadly. The Treasury Committee heard from Professor Tim Leunig that every single person in the country is a loser from stamp duty because it restricts people from moving. Given what Minister Pennycook mentioned about the importance of chains of vacancies making housing more affordable, how does the Treasury assess the impact of stamp duty on mobility and house prices?

The starting point is that stamp duty is a very important source of revenue. It raised in the region of £14 billion last year and will do going forward. I referred earlier to the changes we have made for the purposes of landlords, which is the important 2 percentage point increase, which equates to 5%, for additional dwellings. We estimate that change specifically is going to raise £310 million by 2029-30. The Opposition suggested recently that we should abolish stamp duty altogether. Obviously, the Treasury keeps all taxes under review but that is not directly on the agenda.

I have two questions on commonhold. More broadly, Minister Pennycook, I was interested in your view. From my perspective, the Government are making the right decisions on ending leasehold for new flats, making it easier to transfer to commonhold, and the discussion around ground rent. What interaction does that have? Because that is building a very different kind of housing market in the future. What impact does that have on the Government’s house-building aspirations? Do you see any tensions there? How are the Government looking to overcome them?

Specifically, will shared owners be able to embrace commonhold? What about mixed developments?

I am not laughing.

In the House, you said you would come back to us on this issue of shared owners who are leaseholders. There will be challenges for them because there will be two owners to their property, basically, because they are paying rent on part of it. Will they be able to embrace commonhold?

Okay. Finally, a quick one on marriage value. We talked about affordable housing products. Once a lease gets too low, it is very expensive for people. They are losing value. It is expensive. They can’t sell. How do you intend to make sure that that is resolved? That is the feudal system kicking in, isn’t it?

I am very mindful of time. John, very quickly.

I have a quick question to Minister Pennycook about those people who invested expecting ground rent income that is not capped. Can you clarify what assessment you made of the impact of that? You recognise, and I think you said to me in the House, that you had to make a balanced decision. Could you just say a little bit more about what assessment you did of the reaction from the City, pension funds and others that will be impacted by that?

What assessment did you do of that? Did you make an assessment of what impact that will have?

Thank you very much.

Economic Secretary, you made an important point that stamp duty raises £14 billion in revenue. However, Professor Tim Leunig testified to the Treasury Committee about a revenue-neutral proposal to reform stamp duty, where payments would be made annually rather than up front, alongside council tax reform. What assessments have the Treasury and MHCLG made about this proposal?

I suspect that, to the extent that it was considered, it would have been considered by my colleague the Exchequer Secretary. I do not know whether this is a long-running proposal, or something that was made pre Budget. I will let Minister Pennycook come in as to whether it was something they considered. Failing that, I shall add it to the letter.

I believe that the proposal, for properties up to £500,000, was to replace council tax with a proportional property tax, and for properties above £500,000 it was to replace stamp duty with a proportional property tax.

Thank you. That would be very helpful, because of the issues around stamp duty bunging up the economic system.

Understood. Overall, it is progressive, and we have the relief for first-time buyers, in addition to all the changes we have just discussed.

Minister Pennycook, last summer I wrote to you about the buying and selling process. I promise it was not just because I was going through hell myself; constituents had also written to me about the issue. You launched a consultation last autumn, which is closed now. Have you analysed the results? What feedback can you share with us? What are the Government planning to do?

That is right; it closed on 29 September. We got a really significant amount of detailed responses—about 1,300—and we are working through all the quite technical detail around that, as well as having more roundtables, including one with Baroness Taylor in the last few days. Some messages are clear. The case for change is overwhelming in terms of the need for reform, the importance of up-front information and the importance of the professionalisation of estate agents. As we advise Ministers on these things, we will be thinking about those key themes.

Minister Pennycook, can I press you on some of the principles, although I know that you have the details to work out. Will up-front information be an outcome of this? What about having legally binding agreements at offer stage?

Can you give us timescales for when we will hear?

I will give up my now.

Minister Pennycook, you said earlier that we could measure you by net additional completions, and you said there would be no annual target. That is a sensible approach, but when will we see a volume of homes built? When do you expect to see net and additional completions go up? I do not mean small bits this year. When do you expect to see a significant jump?

It is always an ambitious thing to put things towards the end of a Parliament.

I think it is actually very honest not to have an annual target, but there is the challenge that, for every year you are not completing many, you are piling them on towards the end. What metrics are you using? You have net additional completions. Are there any other metrics about tenure, location or geography? You can build lots of one-bedroom flats somewhere, but it might be that you need family homes. Are you looking at that within the mix—not just the total number, but metrics of types of property?

Just to give an example, a perverse outcome of Help to Buy was that, in Stoke-on-Trent, large executive homes were built in an area where people could not afford them, so they were not very useful to the local population. We all know our own areas and what is needed, and I completely get that local authorities have a very important role in this. However, much as we all want to see devolution and devolved responsibility, there is also the role of central Government, and having a total number of homes may not mean that someone can put a key in the front door of a new home in our constituency if the wrong homes are in the wrong places. Are you doing any evaluation, or is that built into the programme, to make sure that the homes are moving, they are lived in and they are what people need?

New towns are being planned, so it would be helpful to have a rough timetable for that, but also to know where those new towns are going to be built. That is going to add a lot of volume, but it may not be where people are. My constituents might not be so keen to move to a new town, because it is not local. That may ramp up your numbers, but not necessarily in the right places. How will you ensure that the new towns programme does not skew delivery? There is always a tendency in Government to hit a target by hook or by crook by the end of a Parliament, but that could mean focusing on homes in those areas, rather than in places—like a number of our constituencies—that need them, but which are more complex, smaller sites.

Finally, in expensive areas, building a social housing unit is very expensive. For example, in Hackney, that means more grant would need to go in, in an area where I have massive overcrowding, with one in two children living in poverty, partly because of the housing situation. That means that the tendency in your Department could be to put more money into areas where it is cheaper to build low-cost housing, rather than into areas—like a number of ours around this table—where it is very expensive. How are you going to resist that, given that you do not have an overall target for affordable housing?

Thank you. Apologies: other colleagues had questions, but we are out of time. I thank the Ministers and officials for coming to our session this morning. I am sure there will continue to be a lot of focus on this area, and we look forward to the written correspondence you said you would follow up with to both Committees.