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.