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.

  1. 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?
  2. 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.
  3. 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.
  4. 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.
  5. 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.

Maslow Capital London Update: November 2017

The headlines from Nationwide, which claimed house prices in London had fallen -0.6% y/y in October, should be viewed within a wider context. London is comprised of 33 different boroughs and house price growth would have varied greatly across them.

Although the Land Registry data lags behind the market, it can still be used to view the stark differences in performance across London, and to highlight why we shouldn’t have a knee-jerk reaction to headlines stating a -0.6% fall in London house prices.

The latest data to end September 2017 showed a marked difference in recent house price growth across the 33 boroughs, with some performing well and others seeing a correction. The largest falls in price remained contained within the prime central boroughs of the City of Westminster, City of London, Kensington and Chelsea.

London House Price Growth: 3-months to September 2017

Source: HM Land Registry

House prices in the 3-months to September 2017 also fell in Bromley, Barnet, Brent, Enfield, Lambeth and Hammersmith and Fulham. However, in several boroughs, house price growth was strong, including Hackney, Camden, Lewisham, and Redbridge.

And whilst the deterioration in house prices picked up pace in September 2017 in some of the areas mentioned above, in boroughs such as Lewisham, Redbridge, Haringey and Croydon, the data suggests price growth accelerated in that same period.

The correction in prices have been driven on the most part by the political uncertainty from the fallout of the EU referendum. The complexity of Brexit has become increasingly apparent. This has been combined with increases in stamp duty, and now concerns about further interest rate rises which has further lowered the consumers appetite for borrowing, and this has been felt across the capital.

London House Price Growth: 3-months to September 2017 and August 2017

Source: HM Land Registry

The chart below shows the rolling 12-month house price growth in the 3-main prime central areas of London and inner and outer London. Kensington and Chelsea, City of Westminster, and the City of London all continued to see a deterioration in values in September however, the falls in the City of London were much smaller than in previous months. The recent adjustment in the City of London could have signalled the start of a much wider London correction. The chart highlights that back in late 2007, the City of London started to record a price correction before the rest of London, which subsequently followed a few months later.

Rolling 12-month growth London house prices, %

Source: HM Land Registry

Meanwhile transaction volumes remain weak across the whole of London, with the September dataset showing little improvement in activity. Brexit and poor consumer appetite for debt continue to hold back activity.

London change in transaction activity: 3 months to July 2017 vs 3 months to July 2016

Source: HM Land Registry

The key trends impacting London house prices

  • Whilst new instructions have been falling across the country, London new instructions reportedly increased during 4 of the last 6 months with “a relatively smart pick-up cited in both July and August” (Source: RICS UK Residential Market Survey). However, London new buyer enquiries remain weak.
  • Steep stamp duty charges continue to have an impact on transactions at the top end of the market.
  • Changes in rules for mortgage lenders to buy-to-let investors with more than 4 properties will find it hard to raise finance
  • International buyers are still attracted to the London market and this has been boosted by depreciation of sterling. Savills have reported that the high-end market will bounce back once the uncertainty of Brexit has settled.
  • Help-to-buy continues to play an important role in London. Since Q2 2013 8,813 properties have been bought in London under the Help to Buy: Equity Loan scheme (source: DCLG). The announced extension of this scheme should have a positive impact in London.
  • In the year to end-June 2017, 518 planning permissions had been granted for major residential schemes in London. This was an 18.3% increase from the year to June 2016 (source: DCLG).
  • However, according to the DCLG housebuilding statistics, only 16,620 new dwellings have started in London in year to June 2017 which is the lowest number of starts over a 12-month period since 2012. (in the 12-months to June 2016, there were 20,860 new starts)

Contains HM Land Registry data © Crown copyright and database right 2017. This data is licensed under the Open Government Licence v3.0.

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…