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Budget 2018: Help to Buy gets a new lease of life

Help to Buy is extended by two years, but only first-time buyers can participate
October 30, 2018

Major housebuilders breathed a collective sigh of relief after the Help to Buy scheme was left largely intact in the Budget. Crucially, the facility has been extended by two years to March 2023. This gives builders the visibility needed to plan their land purchase requirements, and while the government has stated that there will be no extension after 2023, the scheme has already been extended twice.

There have been some minor changes however. The scheme is now only open to first-time buyers, although the effect of this will be relatively small as fewer than one in five of those using the scheme have not been first-time buyers. The extension will also introduce new regional caps on purchase prices. From April 2021 price caps will range from £186,000 in the north-east to £600,000 in London. These reductions are also unlikely to have much impact because only 15 per cent of total purchases using the scheme were priced above £350,000, and just three per cent above £500,000. London focused builders will take comfort from the fact that the £600,000 cap has been maintained, although the likes of Telford Homes (TEF) and Berkeley Group (BKG) have a limited exposure to the scheme.

Given that the major housebuilders cannot make up the shortfall in housing, the British Business Bank will provide guarantees on up to £1bn of loans to small and medium sized builders, with an additional £653m going towards strategic partnerships with nine housing associations. The Housing Infrastructure fund has been topped up with a further £500m to £5.5bn which could result in the construction of around 650,000 homes.

Stamp duty relief has also been extended, backdated to November 2017, on first-time buyers purchasing shared ownership homes, with an upper limit of £500,000.

There was also a sigh of relief after the recently published Letwin Review found nothing to support allegations that housebuilders were engaging in speculative land banking. A detailed response to the report is expected in February 2019. Shares in housebuilders with the greatest exposure to Help to Buy such as Persimmon (PSN) edged higher on the news, especially as the extension could be extended once again beyond 2023.