Has Help-to-Buy caused house prices to skyrocket?

It has been viewed as one of the most significant interventions in the UK housing market by a government in over 30 years, but since its inception in 2013 there has been continued controversy surrounding the Help-to-Buy scheme (HTB) which aims to help buyers onto the property ladder.

Whilst hundreds of thousands of household’s acquisitions have been supported by HTB equity loan scheme, it has been widely reported that the scheme has also resulted in a disproportionate increase in house prices which has in turn, further exacerbated the affordability factor. However, a closer look at regional statistics shows that the relationship between house prices and HTB is not so obvious. For example, London has evidenced a significant house price increase of 51% since April 2013 however only 13.4% of new build sales were supported by HTB equity loans. Conversely, Newcastle upon Tyne has recorded a price increase of 20.6% with a significant 50.6% new build sales supported by the HTB Scheme. This is similarly evidenced in Liverpool and Sheffield with 37.9% and 32.2% of purchases being supported by HTB respectively, but house price growth in these locations has been below the national average over the same period.

House price growth since HTB inception and % of new build sales purchased using HTB equity loan

help to buy

Source: HM Land Registry, Ministry of Housing, Communities and Local Government.

In addition, affordability remains an issue in many locations even with the support of the scheme. HTB equity loan purchasers require a 5% deposit which, in London, equates to £27,000 £12,000 in Birmingham, £11,700 in Leeds, and £9,400 in Liverpool, based on average new build house prices recorded by HM Land Registry. With the Office for National Statistics reporting that UK median disposable household income is c.£27,300, it can still take residents many years to save up enough to qualify for the scheme.

Whilst it’s easy for critics to blame HTB for price rises, the last 5 years have a been an unprecedented political and economic roller coaster and there have been many other factors at play, including interest rates at historically low levels and a weakened currency, which has made UK real estate, including regional property, more attractive to overseas investors. Moreover, it is a well-known fact that the housing market remains inherently under-supplied in many parts of the country. Whilst it cannot be argued that house prices across the England haven’t increased significantly since 2013, it is difficult to assess the true impact of HTB where markets are so under-supplied.

Whilst HTB continues to cause controversy, it is my view that affordability measures such as HTB are required to ensure home ownership can be achieved by a greater proportion of the population. These measures however are not the only solution and the continued supply of accommodation in all regions is essential. New supply will not only deliver affordable accommodation but also assist in moderating the high rate of price growth that has been evidenced. Maslow Capital is focused on supporting house builders in affordable locations and recognises the HTB scheme as one part of a portfolio of measures to assist purchasers with owning their own home.

Sources: HM Land Registry data © Crown copyright and database right 2017. This data is licensed under the Open Government Licence v3.0. Ministry of Housing, Communities and Local Government.

Also featured in the April 2018 edition of the NACFB magazine.

A look into our crystal ball, 2018, key trends to look out for

As the unpredictable, uncertain 2017 draws to a close, we have reflected on the year behind us and have taken a brief look at the key trends to look out for in 2018.

Without doubt the housing sector will remain top of the government’s agenda in 2018, ahead of Brexit. With many considering supply shortages as the biggest threat to the UK economy, in our recent article entitled “Without the right foundations, 300,000 new homes will simply not get built” we consider the true changes needed to boost housing supply in 2018, including proper collaboration between the public and private sector and proper reform of the planning system. Could 2018 be the year that the government introduces significant changes to truly drive the housebuilding sector forward?
Should economic growth exceed expectations in 2018, it is likely the Monetary Policy Committee will raise interest rates, with some predicting a double rate rise over the course of the year. Whilst the Royal Wedding in May is predicted to boost the UK economy, a rate rise will also greatly depend on whether inflation has now reached a peak. However, a 25 – 50 bps rate rise to historically low rates, is unlikely to have any significant consequences to the housing market in the short term. In the third quarter of the year, the Building Societies Association reported that 90% of new mortgages taken out with Building Societies were on a fixed rate. The real impact of rate rises and the time to truly be concerned is yet to come, when, in 2/3/5 years’ time these fixed rates expire, and homeowners find themselves on much higher variable rates or having to choose between other higher rate products.
A year ago, we predicted a continued rise in the Build-to-Rent sector as stretched affordability in certain parts of the country would leave the desire for home-ownership as a distant dream for many, increasing demand for quality rented accommodation. Affordability issues have not disappeared and therefore this sector continues to grow, and we anticipate this to remain the case in 2018.
The main tranche of the market where we expect further strong activity is that of the first-time buyers (FTBs). In 2017 FTB activity was significant; according to UK Finance, there was a 10.5% increase in the number of loans for house purchase to FTBs in October 2017 when compared to a year earlier. We expect this trend to continue boosted by the extension in Help-to-Buy and importantly, the scrapping of stamp duty for FTBs up to £300k on properties valued less than £500k. This should also encourage developers to build units below this threshold as this, in the right location, is where they should find a steady stream of demand.
And lastly, whilst market growth will be muted in 2018, we do anticipate above-average growth in the North West, North East and Yorkshire and Humberside. Regions where affordability is most stretched, including London and the South East, are likely to underperform the rest of the country. However, even within this part of the country, there will continue to be some growth in some locations, such as in the up and coming London boroughs, those benefiting from the Elizabeth Line, and along the commuter belt where prices will remain under upward pressure because of supply shortages.

Will they, won’t they? What to expect (or not) in the Autumn Budget

The Autumn Budget is almost upon us and, we have been mulling over what important changes we expect the Chancellor to make.

We anticipate that there will be a change to the way Stamp Duty is structured: the publication of Theresa May’s White Paper earlier in the year identified a broken housing market, and coupled with this and the slowdown nationally in transaction volumes off the back of political and economic uncertainty, change to stamp duty would be a logical next step to fix this.

What we think is unlikely, but not off the table completely, is that there will be any big adjustment at the top end of the market, in the +£1 million category. A small reduction in the charges at the prime end could have a big impact on liquidity, however this is probably not where the Chancellor will be focussed.

A more plausible scenario is another stamp duty holiday for first time buyers, similar to that between 2010 and 2012, when properties below £250,000 were exempt from stamp duty. A move like this is unlikely to have much impact in London where average property prices are £483,568, according to HM Land Registry, but could help improve liquidity in the rest of the UK. A stamp duty holiday together with the continuation of Help to Buy, will benefit this important part of the housing sector.

There have also been calls for the Government to remove stamp duty entirely for older homeowners, to encourage people to downsize. It’s hard to see how this could be implemented but supporters say this would help increase the supply of family sized homes. A guise of this in conjunction with further stimulus for increasing housing supply, rather than just supporting demand, may be at the forefront of the Budget. For example, the government could give corporate tax reductions to encourage developers to deliver new housing in certain areas where there is a particular supply and demand imbalance.

Lastly, in a bid to win back some popularity amongst the younger generations, we anticipate a probable shake-up of student loans, something that would help support the student sector.

Watch this space…

What does 2017 have in store for the housing market?

For a widely touted annus horribilis, 2016 ended on a surprising high for the housing market: the UK economy fared better than expected, housing market slowed but nationally prices held steady, and – at least for now – much of the referendum induced fallout abated.

Looking ahead, below are our themes and predictions for 2017:

Article 50 and Brexit uncertainty

No prediction for this year would be complete without Brexit. Theresa May’s self-imposed deadline to trigger Article 50 by the end of March is looming closer but it remains unclear how this will impact the UK in the short and long term. What we can be sure of is that there will be further fluctuations in sentiment because of uncertainty.

What could this mean for the housing market?

Low transaction levels are the main driver behind flat growth forecasts for the market this year, although new builds may benefit from the lack of second-hand stock on the market. However, if concerns for the stability of economic growth increase and banks further tighten mortgage criteria, the likelihood of homeowners struggling to remortgage will increase and we are likely to witness a rise in repossessions.

The outlook for inflation

The Monetary Policy Committee (MPC) will spend the year closely monitoring inflation, which is expected to rise sharply.

What could this mean for the housing market?

Rising inflation will be felt by UK households who will see their disposable income eroded. Whilst low interest rates will continue to support households, any rise in mortgage rates will have a negative impact on the housing market.

Additionally, rising costs are already having an impact on the construction sector. Although the latest Markit/CIPS UK Construction PMI was very positive, inflation has led to a higher cost of raw material imports. Theoretically, this could lead to a slowdown in the pace of construction, although it is more likely that these costs will be passed onto customers.

What remains unclear is when the MPC will feel the need to step in and curb rising inflation with an increase in interest rates. The result of the Brexit vote has meant that its unlikely to be this year, but the impact of the rise in the cost of goods and services is one to watch in 2017.

Housing market and affordability

The eagerly anticipated government housing white paper will be published this month, covering planning reforms to accelerate housebuilding and – presumably – address the issue of affordability.

What will this mean for the housing market?

Amid reports of the number of young homeowners in England continuing to fall and, according to Nationwide, national house prices at 5.3x earnings, the white paper is expected to focus on solving the housing crisis in this country. It is expected that it will include measures to support and enable local governments, home-buyers, and developers.

It is anticipated that the document will include amongst other things, measures to free up land for new supply, including plans for unlocking Brownfield Land and more details about the Starter Home Land Fund. This could be good news for developers and home-buyers, if new supply helps to curb rising land costs.

Changes in the Buy-to-let sector

The buy-to-let sector was hit in 2016 by the April increase in stamp duty, and in October, the Council for Mortgage Lenders reported that lending to landlords was down 21% year-on-year; prospects are likely to deteriorate further this year.

Further to this, the phased implementation of the Prudential Regulatory Authority’s (PRA’s) affordability stress tests came into force on January 1^st 2017 and will restrict the size of loans available for landlords, and, buy-to-let investors will experience an increase in their tax on their rental income from April.

What will this mean for the housing market?

Many anticipate further falls in buy-to-let lending because of the new stress tests. However, many banks were already testing at a high level and it is unlikely we will see a repeat of the steep drop in activity we witnessed in 2016. Nonetheless, a further fall on the demand side from investors could negatively impact on pricing, especially with the surge of new supply planned, albeit the pipeline is still playing catch-up with historic shortfalls.

For existing landlords, rents are likely to increase further as investors try to offset tax increases with a rise in rents. This is within a very competitive lettings marketplace, with high demand for rental properties being chased by an increasing pool of prospective tenants. For renters, this is bad news.

The rise of build to rent

The build to rent sector has become increasingly popular over recent years and it is likely that it will continue to grow at a fast pace this year.

What will this mean for the housing market?

The demand for rented property has never been higher. Pension funds along with other institutional investors are increasingly finding their feet in this sector of the market, investing in new homes and delivering high-quality rented accommodation. It is anticipated that the white paper will also address some of the complications around route to entry for these investors.

This year, we will likely see new partnerships between local authorities and the institutional market. In 2017, we believe they will look for solutions to make this work and support ‘Generation Rent’ and others priced out of the home-ownership market. This is better news for renters. They will have the option of renting from professional institutions, in accommodation built to a high standard, offering not just a home but a community space with the latest facilities and state-of-the-art technologies.