Help To Buy – What Does It Mean For Investors?

The cynically-minded might suspect politicians are at least open to the possibility that there will be (another) snap general election, since they still seem to be in campaign mode.  The latest salvo from the Conservatives is to announce a £10bn boost to the Help to Buy scheme, which it expects will help another 135,000 people get on the property ladder.  The reaction to this news, however, has been varied in the extreme with some groups welcoming it and others criticising it for stoking a heated market.  Property investors may reasonably be wondering what it means to them and when considering this, it’s worthwhile taking note of three, key points.

135,000 people out of a population of 65 milliom

The blunt fact of the matter is that while £10bn is a significant sum, the government only expects it to help about 135,000 people out of a total UK population of over 65 million people.  Admittedly that total population figure includes people who are highly unlikely to be in the housing market, such as children who live with their parents and will include many couples who will only require one property between them, but whatever way you look at it, it is a very small percentage of the population as a whole.  The Home Builders Federation estimates that the scheme has helped about 200,000 people buy a new home in the last four years, accounting for 1 in 12 of all sales to first-time buyers.  While this is clearly a boost to the home-building industry it still means that 11 of all 12 sales happen outside of the framework of the Help to Buy scheme.

The mortgage market review is still in effect

The basic idea behind the Help to Buy scheme is that a buyer puts up a 5% deposit, the government adds a 20% equity loan and a mortgage lender provides the remaining 75% of the sales price.  This approach obviously lowers the bar to getting a mortgage, but does not and indeed cannot remove it.  Buyers still have to show that they can meet the affordability criteria and, in particular, that they can make their mortgage payments over the long term, even if interest rates rise.

Markets are governed by the laws of supply and demand

While the Help to Buy scheme may be politically appealing to some people, the fact of the matter is that the dynamics of the housing market are dictated by the laws of supply and demand and in the UK there are a number of reasons why supply is constrained, one of which being the challenges relating to finding suitable building land in the first place and then to get planning permission for developments.  In simple terms, for as long as this situation continues, the UK’s housing market will continue to be a seller’s market and making it easier for some people to access funds may simply act to push up competition between buyers and hence increase prices.

Where does this leave property investors?

For all the soundbites and media fury about the extension of the Help to Buy scheme, the reality is that in all probability it’s only going to be of relevance to a very small number of home buyers.  Therefore, while it may give a boost to home builders, realistically, it’s likely to be a very moderate one.  In other words, from an investor’s perspective, the announcement is neither a reason to panic or a reason to celebrate.

What could well be of more interest and significance to most property investors is being given information on how the government will address issues such as the supply of labour to the building trade post Brexit, what further steps (if any) they will take to facilitate the planning process and what plans they have for the leasing system.

Overall, however, the fact still remains that demand for property in the UK has long outstripped supply and that existing housing stock typically needs periodic upgrades, hence the UK property market looks to have a positive future over the long term.

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Housing Needs For The Forthcoming Year

The snap election seems to have taken many people by surprise, including, it would appear, the Prime Minister who called it. Having been deprived of her last minister for housing, Gavin Barwell, who lost his seat, she has recently appointed a replacement in the form of Alok Sharma. Given that he is the 6th housing minister to be appointed in roughly as many years (since 2010), it is an open question as to how long he will stay in post, but assuming he makes it to this time next year, what are his priorities likely to be?

Housing refurbishment

While many newspaper headlines have been devoted to the overall shortage of housing and the corresponding difficulty of “getting on the housing ladder”, the tragic events at Grenfell Tower have brutally highlighted the fact that some of the UK’s existing housing stock is in drastic need of refurbishment. What form this will take will depend on just how bad its condition is. In some cases, it may be possible simply to update and upgrade existing buildings. In other cases, the only realistic option may be to demolish the existing structure and start again.   In either case, it is very possible that the high-profile nature of the Grenfell Tower fire will mean that the refurbishment of existing properties goes to the top of the political agenda.

Home-building

The Conservative manifesto promise was to build a total of 1.5 million new homes by 2022, of which 1 million were to be delivered by 2020 (this total including houses built as a result of actions taken by the last parliament). It will be interesting to see whether or not the Conservatives will be able to make good on this pledge. The simple fact of the matter is that government support for home building is dependant upon tax revenues and the uncertainty around Brexit may make it rather difficult to forecast how many people are going to be in the UK to pay taxes, let alone how many of them will be in work and what level of tax they will pay. Added to this, there is a large question mark hanging over the availability of labour for the construction industry, which has long relied on trades people from eastern Europe, which makes it difficult to predict the cost and schedule of housing projects and that is without taking into account the fact that the weakness of Sterling may well continue for the foreseeable future and while this is good news for exporters (and inbound tourism), it is bad news for anyone who needs to import either materials or labour (or encourage labourers already in the country to stay here instead of taking their skills elsewhere). Notwithstanding all this, it is to be hoped that the government will do all it can to support home building as the UK has long suffered from a shortage of housing stock.

Improving the situation for renters

Previous housing minister Gavin Barwell pledged to ban lettings agencies charging fees to tenants. This change has yet to be implemented, although given the amount of press coverage it received, it would probably be politically-challenging for the Conservatives to reverse the decision. While this pledge was welcomed by tenants, landlords and lettings agencies commented that any fees charged to landlords would have to be passed on to tenants. Those in favour of the change, countered that this does not appear to have been the case in Scotland. This, however, is a bit of an open question. Rents have risen in Scotland since the ban on letting agent fees (to tenants) was introduced in 2012 and although a 2013 study found that only 2% of landlords raised rents specifically because of this, it is still entirely possible that the change factored into the calculations of the other 98%. Ultimately the issues in the rental market reflect overall lack of supply and the only meaningful way to address this is to improve the supply, for example by encouraging build-to-rent schemes.

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King’s Lynn update – May16

The team are delighted to report the acquisition of a new site in Kings Lynn Norfolk.  The site is a 6 Acre high profile site within very easy walking distance to the Town Centre and train station. It has outline planning permission for 98 homes, the team are progressing with appointed architect to progress and submit for full planning later in the year.  A pre-application meeting with the planning officer has already taken place, the outcomes of which have been worked into the site plan.

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