Retaining the Help to Buy scheme through to 2020 would provide the confidence the industry needs to invest and increase housing supply, and enable thousands of people to buy their first home
The one government policy that will do the most towards stimulating increased housing supply over the next six years, and which should be preserved following the next election, is undoubtedly the commitment to extend the equity loan element of the Help to Buy scheme on new houses to March 2020.
This policy is not without its detractors. Indeed, a debate has raged since the introduction of Help to Buy in April 2013 that it is fuelling a housing bubble. From my perspective this is simply not the case, although the arguments for and against Help to Buy are still worthy of reflection.
I bought my first home in 1982 with the benefit of a competitively priced 95% loan-to-value mortgage. This gave me independence as I left university and was the start of a journey up the housing ladder as my financial circumstances improved. A straw poll of my contemporaries shows that over the years this has been the route of entry for a significant proportion of first time buyers. As such, the Help to Buy scheme is only creating the same opportunity that many have enjoyed for decades.
The 2011 ONS census data showed that, through the depths of the credit crunch when high loan-to-value mortgages were no longer available, approximately 600,000 young single adults who would previously have established their own households returned home to live with one or two other adults; a marked shift from any historic trend. It is this group of people, together with many potential first time buyers in their mid-twenties to thirties, with good and reliable incomes but who are locked out of the market, who will directly benefit from this policy and which in turn will stimulate increased housing supply.
From a policy point of view it seems that Help to Buy is stimulating markets and providing access to property for first time buyers across all regions. So the question is; will it drive additional supply with the economic benefits of job creation and the stimulation of the related professional service sectors also involved with housing?
It is no surprise that 89% of the 15,000 homebuyers to complete a purchase under the equity loan Help to Buy scheme have been first time buyers. Of these, 77% have acquired homes outside of London and the South-east. At an average value of £203k, this is a long way from driving the overheated market in these regions, for homes in the £400k to £600k range.
The mortgage guarantee element of Help to Buy, with completions last month increasing threefold from 750 to 2,500, is gathering pace. Eighty-two per cent of these purchasers are also first time buyers, with an even greater percentage (85%) having acquired homes outside of London and the South-east at a significantly lower average value of £148k. Notwithstanding these statistics, it is perhaps this element of Help to Buy where the potential impact is less quantifiable and where the direct relationship with stimulating increased housing supply is less proven.
From a policy point of view it seems that Help to Buy is stimulating markets and providing access to property for first time buyers across all regions. So the question is; will it drive additional supply with all the attendant economic benefits of job creation and the stimulation of the related DIY, landscaping and professional service sectors also involved with housing?
From a housing developers’ perspective, Help to Buy has stimulated significantly improved sales rates across the country, creating a compelling climate within which investment decisions to increase delivery can be made. However the initial Help to Buy timetable, which only extended to March 2016, created a conundrum. With the opening of a new housing division taking several years and many millions to establish, any investment to increase delivery would no sooner be operational than the Help to Buy scheme would have been withdrawn, leaving the industry to rely upon the normalisation of the mortgage market to maintain ongoing levels of demand. In addition, once such a scheme comes to an end, there is the potential that it could lead to a heavily distorted market in the absence of any transitional arrangements.
Against the backdrop of an extended commitment through to 2020, such investment decisions are simpler and more compelling and also, importantly, provide the context within which the industry’s depleted supply chain can also have the confidence to invest and increase capacity. Indeed, Crest Nicholson has already announced its intention to open a further division in the South-east and to continue its year-on-year growth in housing supply, and we are not alone. There has been a similar stream of announcements in recent months confirming the intentions of many of the larger developers to open new divisions and increase delivery.
With all political parties recognising the need to almost double the supply of new housing in the short term, both to meet demand and to fuel wider economic growth, retaining Help to Buy through to 2020 will be a significant factor. It is the shortage of housing and the prolonged failure for housing supply to match household formation which creates the potential for a housing bubble, not a policy which allows otherwise excluded first time buyers to follow their parents into house ownership and begin the journey of independence.
Chris Tinker is executive board director and regeneration chairman at Crest Nicholson