The uncertainty created by its 2016 end date means housebuilders may not ramp up production as quickly as hoped
The positive impact that Help to Buy (HTB) is having in giving first time buyers, on average earnings, the opportunity to enter the housing market, as well as stimulating additional supply, is becoming increasingly evident. In this respect HTB is a major growth engine for the economy.
The fact that the prime minister spent much of his first day of the new year promoting HTB and visiting Centenary Quay, a large Crest Nicholson housing regeneration project in Southampton, illustrates the point.
At Centenary Quay, we have seen 17 reservations under HTB since its introduction in April 2013, accounting for between 35% and 40% of total open market reservations. All purchasers under the scheme were first time buyers. The average reservation price was under £170,000, while the list of purchaser profiles demonstrated that it was meeting the needs of a wide cross-section of the market including a train driver, teacher, retail manager, pharmacist, nurse and cruise worker. These are people who have all demonstrated their ability to service mortgage repayments but who would otherwise be frozen out of the housing market thanks to the lack of a significant deposit.
Developers will rightfully need to consider what constitutes a sustainable level of supply post 2016 when they are assessing how fast to accelerate in the short term
Several of the housebuilders in this week’s market updates have indicated that HTB is accounting for around 35% of open market sales and, nationally, the average value is between £165,000 and £175,000. It seems clear that the scheme is helping to drive sales across market entry priced dwellings, which makes it all the more unhelpful that it’s £600k upper limit attracts so much negative attention.
Detractors suggest that the increased demand associated with HTB will create a price bubble. This is difficult to substantiate, particularly when the equity loan element of the HTB scheme is delivering an additional 15,000 to 20,000 sales a year, after netting off sales from other schemes which it superseded (such as First Buy).
The great benefit of HTB is that it is accessible to a significant number of housebuilders of all shapes and sizes. Indeed it is reported that over 1,000 developers are now registered under the HTB scheme, whereas previous schemes were often only available in practice to the top 20 or 30 developers.
The question rightly asked of the housing industry is whether this will lead to an increase in delivery. Again, listening carefully to the industry it is clear that there has been a marked increase in the number of sales per outlet per week. Housing developers, particularly the majors, have indicated that they will respond with increased production thanks to the greater level of confidence which exists in the market. So, in practice, the equity loan HTB scheme is undoubtedly helping the right people into the housing market and stimulating increased supply.
However, it is less clear how to quantify the impact of the newer indemnity-backed HTB mortgage scheme, which applies to both new build and second hand homes. It is too early to judge, but this could potentially make a major contribution, particularly in the second hand market. Whether this will in turn drive further supply is hard to predict, particularly as both schemes will expire in early 2016. Developers will rightfully need to consider what constitutes a sustainable level of supply post 2016 when they are assessing how fast to accelerate in the short term. Overall, pre the withdrawal of HTB it is difficult to conclude that increased supply, above an average of 15% per annum, will be sustainable.
Chris Tinker is executive board director and regeneration chairman at Crest Nicholson