Britain’s housing crisis may be focused on rapidly rising prices but there has always been an issue of supply and demand. We simply haven’t constructed enough new homes.
However, the new-build market has gained momentum and recent figures from the Department of Communities & Local Government show real signs of growth. New-build completions were at 147,960 in Q1 2017, while starts have seen a year-on-year increase of 15 per cent.
The Government has played a part in fostering a more favourable environment for housebuilding, but changes in the mortgage market have also indicated the potential for new-build to play a central role in resolving the housing crisis.
Access to finance
Loan-to-value ratios have experienced positive change. The traditional borrowing limits of up to 80 per cent were always going to be a barrier to first-time buyers but lenders have started to up their game in this area.
In August, Halifax increased the highest LTV on its standard new-build mortgage to 85 per cent (or 90 per cent for buyers using a shared-ownership scheme), while Principality Building Society upped its range to 90 per cent lending, both following an earlier increase by Leeds Building Society to 90 per cent in May.
The industry must go further, though. If we are to increase first-time buyer interest in new-build properties, we need to see more lenders raising their maximum LTVs to 90 per cent or even 95 per cent.
Lenders must also address the lack of parity between borrowing limits on a house or an apartment. Building upwards is a reality that we must face in our towns and cities to tackle rising demand. More people than ever are living in urban areas and flats are an important part of the UK’s housing stock. It’s therefore vital that those looking at an apartment are given the same access to finance as house hunters.
Help to Buy
Help to Buy has also been central to new-build’s growth. This scheme alone is estimated to be responsible for 35–45 per cent of new-build purchases and, over the past four years, more lenders have entered this market. Twenty-one providers are involved with Help to Buy and I’m proud of the role that Legal & General’s New Build Club has played in helping these lenders launch their own Help to Buy propositions.
The next step is for more providers to announce their support for Help to Buy customers who want to remortgage. After five years of the scheme, there are just eight lenders offering remortgage propositions. However, to improve this situation we need further clarity on the scheme’s future. Help to Buy is set to end in 2021 and is currently under review with the Government. Uncertainty will only dissuade lenders from launching their own range. The sooner the Government comes forward with a new proposal, the better.
Other areas of the market, from shared ownership to custom build, are starting to blossom too. Virgin Money’s launch into custom build is a positive note. We hope more lenders will take advantage of the Government’s Right to Build legislation to provide more choice for customers seeking to design their own home.
Around 20 lenders offer shared-ownership mortgages. This tenure is growing in popularity with first-time buyers as another way of getting onto the property ladder, and we expect to see more providers launch ranges in the months ahead. If lenders can find a way to work with housing associations, this sector could grow from 10,000 homes a year to around 30,000 by 2020.
Despite the growth of these sectors, there are still false impressions among lenders about shared ownership and custom build. Many view them as being riskier, so it’s important that the industry continues its work to tackle these misconceptions through education.
New-build isn’t just about first-time buyers, though; we also need to encourage last-time buyers by boosting the number of retirement-friendly homes for downsizers. L&G recently took a first step into this sector with the acquisition of Inspired Villages and we plan to develop further sites of up to 10 acres.
Finally, the Government must still play its part. It must create an environment that encourages fluidity in the housing market. To make the most of new-build, the Government should incentivise last-time buyers to move and give first-time buyers the best chance of getting onto the ladder. The thousands of pounds in tax that many buyers must pay can both deter older homeowners from downsizing and stop younger buyers in their tracks. It’s time for the Government to look at this tax and consider reform.
Jeremy Duncombe is a director at Legal & General Mortgage Club