Developers should be putting plans in place this year to deal with the end of the Help to Buy scheme in 2021
As the new-build sector runs into the summer season, gracefully hurdling over a surprise general election as it does so, it continues to demonstrate resolute progress. However, we still have several challenges ahead of us.
The daily news briefings on the Brexit negotiations will be with us for at least two more years, and at times may carry headlines to worry would-be purchasers. As mortgage advisers, we should clearly lay out to customers their choices, the costs and our solutions to whatever concerns they may have.
UK house prices are beginning to ease off in their rate of monthly increase, down to 2.6 per cent in April, according to Nationwide’s House Price Index. Meanwhile, mortgage rates have become even more competitive, as lenders take each other on in their aggressive marketing campaigns.
There are no signs yet that the new-build sector will not maintain its upward curve of the past four years. Indeed, the government initiative that launched in 2013 under the banner ‘Help to Buy Equity Loan scheme’ has been a notable success story.
By the end of 2016, more than 110,000 homes had been sold in England using the scheme. That figure should be well over 120,000 by now, as we await the Q1 results to March out next month.
There is no reason to fear a change to the criteria of this scheme post-general election, though a movement of key ministers to other departments is always possible.
That said, developers need to plan ahead and the current closing date of the Help to Buy scheme – March 2021 – is not so far away in relative terms.
With this in mind, it is pleasing to hear high-level talks are under way to look at how the market might operate from that point: whether Help to Buy will remain available, whether its parameters might be pared back and whether it will still act as the key support for buyer demand. Homebuilders really need a resolution this year if they are to make the necessary plans that will play out closer to 2021.
In the meantime, next April is the fifth anniversary of the scheme. The first wave of buyers from back then will need to account for the monthly interest charge on their equity loan from the HCA, which may prompt them to consider their current first charge arrangements and whether a partial staircase of the HCA loan might be possible and beneficial.
The choice for owners seeking a Help to Buy ‘staircase’ remortgage needs a broader resolution than simply leaving borrowers to seek assistance from their current lender.
The welcome news is that some lenders in the scheme are already making plans to broaden this out.
It is also important we do not forget the reduced choices for buyers going outside the scheme. Six of the largest lenders restrict new-build houses to a maximum 85 per cent loan-to-value, with new-build flats struggling to reach a higher LTV than 80 per cent.
Of course, advisers can find options above these benchmarks but it is obvious any cliff-edge closure of the Help to Buy scheme would considerably moderate demand in this sector.
In other news, 2017 may go down as the year Modern Methods of Construction came of age in the new-build sector. MMC covers a wide range of construction materials, components, assemblies and systems, normally (but not always) manufactured offsite.
Some of these have been around for a while but have not been prevalent in the owner-occupied sector. Work is going on to determine the valuation mechanisms needed by surveyors advising mortgage lenders over their longevity and viability.
In its housing white paper, the Government made great play of the speed and efficiency with which these high-quality homes could be delivered, particularly in urban areas. We look forward to a swift resolution so lending can get under way later this year.
James Chidgey is new homes relationship manager at the Mortgage Advice Bureau