- The Help to Buy scheme has boosted completions and average sales prices for housebuilders
- New restrictions around eligibility for the scheme pose a risk to earnings
Amid all the uncertainty permeating the UK property market, one date has been fixed in the diaries of housebuilder management teams long before the pandemic emerged. On April 1 a new Help to Buy scheme will come into force in England. The equity loan scheme will be restricted to first-time buyers and include regional house price caps.
That the curtailment of the old scheme will no longer coincide with the end of the stamp duty holiday will likely be a relief to housebuilders. Nevertheless, stricter eligibility requirements still cast uncertainty over whether the rate of completions and sales price growth will continue to be propelled forwards at the same rate as they have been in recent years.
Under the new scheme, first-time buyers with a deposit of at least 5 per cent can borrow up to 20 per cent of the purchase price of a new build property, and up to 40 per cent in London. Property price caps ranging from £186,100 in the North East to - an unchanged - £600,000 in the capital are in place, designed to reflect the differences in average sales prices.
The scheme has turbo-charged completion levels for the UK’s housebuilders since it was introduced in 2013. Completions funded by the scheme rose 88 per cent to a pre-pandemic level of just over 52,900 by September 2019. The value of the properties bought by the scheme’s users has risen at a faster pace of 162 per cent.
Since the scheme was introduced, sales of houses priced at between £350,000 and £600,000 have risen at a greater rate than those priced below that threshold. More buyers being able to afford higher priced homes has benefited housebuilder earnings.
“One of the nicknames for the Help to Buy equity loan has been, ‘Help to Buy bigger’,” said independent housing market analyst, Neal Hudson. As the scheme has evolved, housebuilders have responded to the increased demand for larger homes, he said.
There is a real risk that the rate of completions could be stymied by fewer prospective buyers being eligible. “The challenge at the moment will be isolating that from any wider economic fallout from Brexit or the pandemic,” said Hudson.
The proportion of previous completions attributed to buyers now ineligible for the scheme varies. For Barratt Developments (BDEV), 21 per cent of those that used Help to Buy during its first half would be ineligible under the new scheme. However, Taylor Wimpey (TW.) has said that almost half of homes in England purchased under Help to Buy last year would not be eligible under the new scheme, either because they were priced above regional price caps or purchased by existing homeowners.
Given that the vast majority of the scheme’s users were first-time buyers - 82 per cent during the third quarter of 2020 - adapting to the introduction of price caps poses a bigger risk to housebuilder earnings.
In October, Bellway (BWY) said it expected a modest reduction in the average selling price after this year, following the tapering of Help to Buy. The expected average selling price of plots bought during the last financial year was £280,000, £10,000 below the average sales price achieved in 2020. The hope is that offering a more affordable product will mitigate any “potential downward effect” on sales rates by minimising reliance on Help to Buy, management said.
Indeed, the introduction of new price caps in regions outside London has prompted housebuilders to adapt how they configure sites and approach land buying. “For us it’s about, if we would have been potentially buying a site that had only four to five bed homes in the north of England, then clearly we would look at that more carefully because we know you’re going to have no support from the help-to-buy programme,” said Barratt chief executive David Thomas.
Despite lower average house prices, the north of England, and the north east in particular, stands to be most affected by the price caps, “because so much of the housing delivery has been large detached houses”, said Hudson.
That is borne out by the fact that for Taylor Wimpey, only 29 per cent of homes bought using Help to Buy in England last year would have been under the new price caps.
“If there’s one issue the whole of the industry has with help-to-buy, [it’s that] some of those caps are oddly distributed,” said Vistry (VTY) chief operating officer Graham Prothero.
Vistry has yet to see an impact on demand from the change to the scheme, with 87 per cent of sales made since the beginning of January due to be completed after the end of March. However, he added: “We are taking tactical decisions, particularly where you’re on the border of two caps.”
Could the government's mortgage guarantee scheme, designed to support buyers with smaller deposits, provide a counterweight to the scheme's restriction? It could be limited. Even pre-pandemic, there were only a handful of mortgage products at 90 per cent loan-to-value or more being offered by lenders on new build homes, due to heightened caution around the premium sales price attached to those types of property.
The biggest crunch point will be 31 March 2023, when Help to Buy is due to end altogether. The votes to be won by keeping the housing market buoyant mean it seems probable that a further support programme will take its place. However, there is no guarantee that it will be as generous to the housebuilding industry, or - given criticisms surrounding some of the biggest names - without additional conditions around maintaining build quality.