Housing Watch: Help to Buy cannot go on forever

The scheme has had an enormously positive impact on the housing market, but it is time for the new build sector to prepare for it ending.

After years of issues with affordability among first-time buyers, 2013 saw the government address the issue by launching the Help to Buy scheme.

In the time since its launch and its fifth birthday in March, 169,102 properties had been purchased using a Help to Buy loan.

Indeed, there is no doubt that the scheme has had an enormously positive impact on the housing market.

Not only has it helped first-timers who may never have been able to get on to the housing ladder, it has also given the house building sector a huge boost by offering incentives to buy new build homes.

According to government statistics, 107,980 new houses were completed in the financial year just prior to Help to Buy’s launch. By 2015/16, the figure had risen to 139,880, and has continued to increase each year to 160,300 completions in 2017/18.

In fact, 19 per cent of all homes bought using a mortgage are now new builds, according to UK Finance.

The scheme does have its critics, however, with many going so far to suggest that it has actually been quite damaging to the very area it was designed to help.

They argue that, by increasing demand for new builds, Help to Buy has inflated house prices, resulting in those using it paying more for their new builds than they are actually worth.

It is widely believed that new build prices will fall if the scheme ends, to reflect a drop in purchasing power. If this happens, many Help to Buy borrowers could find themselves in negative equity before they even start paying off their 20 per cent loan, which could cause huge financial problems and jam up the market as they find themselves unable to move.

It could be said that the scheme has benefited property developers much more than first-time buyers, but there are also concerns about the reliance some of these organisations are placing on it.

According to the Home Builders Federation, new home planning permissions are up 88 per cent since Help to Buy was launched. Many of the 3,000 developers registered as part of the scheme are small operations that rely on the business it generates, so if it was to be pulled, there could be real issues for those who have put all their eggs in one basket.

Whether you think Help to Buy has generally been positive or negative overall, what is clear is that it could not go on forever.

So what happens when it does end? Well, if all the concerns outlined above do materialise, it would have a massive impact on the government’s housing target of building 300,000 new homes each year.

And even if the government does manage to hit its targets, we could be in a situation where first-time buyers once again cannot afford the houses that have been built.

Help to Buy has encouraged lenders to offer higher loan-to-value ratios, with the number of products available at 95 per cent or more doubling since it began.

Once the scheme ends, lenders are unlikely to accept deposits as low as 5 per cent on new builds because of the risk.

Much like a brand new car loses value as soon as it is driven off the forecourt, new build homes fall in value as soon as the property is purchased.

Lenders must think hard about their new build LTV strategy in preparation for it ending. If they do not maintain high ratios, there is a very real risk the sector will grind to a halt when the scheme is pulled.

John Phillips is operations director at Just Mortgages and Spicerhaart

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