The Government’s Help to Buy scheme has encouraged people to purchase larger houses than they could otherwise afford, but all that may be about to change, a leading expert says.
Jon Rawley, Skipton Building Society’s business development manager for the South West, said the scheme, due to end in 2023, had helped house buyers snap up properties in better areas and more quickly than would otherwise be possible without the helping hand from Treasury coffers.
But in April 2021 the scheme will be restricted to first time buyers and regional property price caps will apply. The price cap for the South West will be £349,000.
Mr Rawley said this may encourage house builders to concentrate on constructing smaller and more affordable homes.
“The general consensus is that the scheme works best in facilitating ‘bigger, better, sooner’ purchases,” he said. “In other words, scheme users are buying larger houses than they could otherwise afford, in better areas and more quickly.
“Proponents will say that the so-called ‘second steppers’ using the scheme in this way are freeing up other suitable second-hand properties for would be first time buyers.
“But critics will say the scheme encourages larger developers to build more expensive homes with higher margins and that more investment is needed to support smaller developers, self and custom build initiatives and more targeted schemes like starter homes and shared ownership.”
Mr Rawley, who is based in Plymouth, said the price caps may mean developers will rethink theirplans for more expensive regions and concentrate on designing lower cost, smaller and – presumably – more affordable homes.
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“On the face of it that might be a good thing in the South West where average wages often lag below national averages,” he said. “Lower caps might lead to lower margins or lower sales for the housebuilders, maybe affecting the bull-run on their share prices.”
HTB was launched by the Government in April 2013 and in the past year, nationally, has helped the equivalent of 143 households per day take their first steps onto the property ladder, based on figures published by the Ministry of Housing, Communities & Local Government (MHCLG).
The scheme offers buyers of a new-build home a loan of up to 20% of the purchase price interest free for the first five years, alongside a traditional mortgage of up to 75%, meaning buyers need only a 5% deposit.
In 2018 the take up of HTB soared by 12%, Mr Rawley explained. Of the 52,000 properties bought using HTB in 2018, 42,748 were purchased by first time buyers – a rise of 14% on the previous year.
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“The programme is likely to remain very valuable in supporting home buyers until 2023, when it is due to end,” Mr Rawley said. “However, from April 2021 the scheme will be restricted to first time buyers and regional property price caps will apply.
“The price cap for the south west will be £349,000. Based on HTB purchases in Plymouth for the first quarter of 2019, the average purchase price is £240,000 - so the future price cap doesn’t appear as though it’ll have any limiting impact.
“Although, for the South Hams the average price in Q1 2019 was £273,000 so there’s clearly some variation across the region even though the cap is the same for the whole of the South West.”
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Mr Rawley said the MHCLG has made it clear the scheme won’t be extended and will be looking to developers and lenders to come up with alternative products for first-time buyers and home movers.
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He said HTB’s detractors claim it is no coincidence the major housebuilders have seen profits soar as “developers continue to capitalise on the perfect storm of rising house prices, a lack of affordable housing and the never-ending queue of desperate millennials, open-palmed and ready to spend their state sponsored cash on new build property”.
He said: “You only have to look at the profit figures for housebuilder Persimmon – over £1billion last year and on track to exceed that in 2019.”
Mr Rawley stressed that with an end-date in sight for HTB, non-first-time buyers wishing to use the scheme will need to think now about any plans to buy new-build properties.
“With some of the current build times being quoted at up to 12 months, and the HTB scheme limited to first-time buyers only from April 2021, the clock is ticking on being able to access the additional government loan offered through this initiative,” he said.