The government’s Help to Buy scheme was launched in March 2013 in an attempt to assist first-time buyers looking to ascend the housing ladder and to help others climb to the next rung. The scheme has been accused of inflating house prices to ever more unaffordable levels, although almost everyone in the industry is convinced that in most regions of the UK, it is the lack of supply of houses that is holding homeowners back. Help to Buy has become a sizeable political issue – is it responsible for the next housing bubble, or is it a valuable tool to help not just homeowners, but the construction industry itself? If you’re familiar with Integrity Software’s blog you’ll have seen our continued coverage of Help to Buy – all examined through the lens of the construction industry – and in particular how you can use construction accounting software to capitalise on the outcomes of this government scheme. In this article, we examine the figures recently released by the UK government – figures that show some rather unexpected results.
What are the two phases of the Help to Buy scheme?
Although often referred to simply as ‘Help to Buy’ in the media, the two components of the Help to Buy scheme are aimed at different types of homebuyers. The first phase – underway as of March 2013 – consists of the government providing an equity loan for up to 20% of the value of a home, interest free for the first five years. Only new builds are eligible, and only up to the value of £600,000. Phase one aims to help out individuals who have saved a 5% deposit but wouldn’t be able to afford the mortgage repayments without additional assistance.
Phase two, which began in January 2014, uses a different mechanism – a mortgage guarantee. The government offers mortgage lenders a guarantee on mortgage loans, covering any potential losses from failed repayments. This means that lenders are likely to be more willing to offer 80-95% mortgages. This protects the lender, not the borrower. Both new builds and existing properties are eligible for phase two, but those who already own property are ineligible.
Now that Help to Buy is in full swing, the government has released a huge batch of statistics that reveal the extent to which the scheme is shaping the housing market. Building.co.uk compiled their own Help to Buy heatmap based on data from local councils, up to March 2014. It showed that Help to Buy contributed to only 3% of house sales, and no more than 1% (rounded) in the three local authorities with the highest rates of house price inflation. Conversely, in the three areas with the highest rates of Help to Buy assistance, house prices had actually fallen.
The official central government figures tell a similar story. Only 4% of house sales from the launch of the scheme to May 2014 were assisted by Help to Buy. Just 5% of Help to Buy mortgages were taken out in London. 80% of loans were given to first time buyers, and nearly half of completions under Help to Buy were for the sale of properties worth less than £125,000.
What does this mean for the construction industry?
The figures suggest that Help to Buy hasn’t had that much of an impact on consumer demand for property – or at least not to the extent it was feared. Clearly there are other drivers for house price inflation, such as restricted supply and demand from investors. However, many commentators had previously suspected that Help to Buy was propping up the construction industry. The figures show that this is not the case. However, the sheer presence of Help to Buy may have had a positive effect on the housing market and the construction industry, improving the mood of those in the market and driving growth. Although this points to sustainable growth, it is worth bearing in mind that the high house prices in London and the Southeast still suggest the presence of a bubble. In the meantime, construction companies can benefit from high house prices – particularly if they’ve instigated the use of sound job costing software. If you’d like to make the most of the housing boom, speak to a member of the Integrity Software team and see how our software solutions could help you.