Housebuilders charge premium for Help to Buy properties

From The Financial Times, 8 August 2017

By Judith Evans

Critics say scheme has succeeded only in boosting company margins and profits

Housebuilders have been charging a premium of up to 5 per cent for homes sold using the government’s Help to Buy equity loan scheme, adding extra obstacles for those who want to move up the housing ladder, according to a new analysis.

Prices for homes sold under the scheme have been rising faster than the wider market, with other new-build homes effectively cheaper thanks to incentives such as price discounts, according to the analysis by broker Stockdale Securities.

Help to Buy, the flagship housing policy of David Cameron’s government, enables people to buy new homes with deposits of only 5 per cent, using an equity loan from the government for 20 per cent of the home’s value outside London and 40 per cent of the home’s value in the capital.

But critics argue that the scheme, which has supported more than 120,000 house purchases since 2013, has boosted margins and profits at housebuilders without reducing pressure on Britain’s stretched housing market.

Alastair Stewart, an analyst at Stockdale, said conversations with housebuilders indicated that Help to Buy was “marketed as an alternative to the variety of incentives that have been on offer to other buyers”.“

These include discounts to list price, higher specifications of homes or features and part-exchange,” he said. “Help to Buy was presented to buyers as ‘the incentive’ even though . . . the housebuilder bears no risk whatsoever.”

Buyers already pay a so-called “new build premium” to live in a brand-new home with unused appliances, which on average amounts to 17 per cent of the home’s value, according to separate findings by estate agents Countrywide. But the boost begins to diminish as soon as the buyer moves in and starts to create wear and tear on the property. Countrywide found last year that buyers using Help to Buy in the early years of the scheme were only half as likely to upgrade to a new home as the average first-time buyer.

When the need to save a larger deposit is taken into account, many Help to Buy purchasers will find themselves “prisoners” unable to step up the housing ladder, Mr Stewart said, because vendors must pay the government back the equity loan as a proportion of the home’s sale price, while mortgages for 95 per cent of the value of a home are difficult to obtain for “second steppers”. “What we consider almost totally inconceivable is the concept of the majority of buyers under London Help to Buy ever amassing the levels of equity required to move to a larger home in the capital,” Mr Stewart said, adding that the costs of a deposit, stamp duty and other charges for such a move would amount to almost £100,000.

In weaker housing markets in the north of England, the so-called “Help to Buy premium” is greater, Mr Stewart said, adding buyers may risk negative equity if underlying markets do not rise.

The Stockdale research comes as government ministers consider whether to continue Help to Buy after its current scheduled end date of 2021. Many housebuilders are lobbying for the scheme to continue, but have braced for it to be tapered over time. A report that it might end early — subsequently denied by the Department for Communities and Local Government — briefly sent housebuilders’ shares down as much as 5 per cent last week.

But some companies have broken ranks to criticise the scheme.

Rob Perrins, chief executive of Berkeley Group, has called it “inflationary”, while Jolyon Harrison, chief executive of Gleeson, which builds low-cost homes, has said the price ceiling for houses bought through the scheme should be reduced.

David O’Leary, policy director at the Home Builders’ Federation, an industry group, said a shift towards selling houses rather than flats accounted for some of the apparent price rises under the scheme, together with the later introduction of the London version. “Help to Buy has allowed the new build sector to buck the trend in the wider housing market, where transactions have been pretty sticky, and also helped first-time buyers to sustain the same sort of presence in the market,” he added.


More Green Belt being lost without tackling housing crisis

Click here for the full CPRE report

5/10 to the CPRE for this, because it is only half the story.

The real problem is that there is a confusion that unaffordable housing means there is a housing shortage. (Even those houses classified as “affordable” in new developments are out of the reach of most people.)

The price of a house is driven by a number of factors – house prices can go down as well as up.

At the moment, the Bank of England’s ultra low interest rate policy has forced the price of all financial assets, including houses, into a stratospheric bubble. The problem is not deficient supply: it is hugely excessive demand. More and more research into the housing and rental markets is showing that this is the case.

You could concrete over the entire south east of England, including the Green Belt, and under the current monetary policy regime there would not be any reduction in house prices. This is because credit is so cheap that demand is, in effect, limitless.

If interest rates were to be raised to a suitable long term level, this excessive demand would disappear. (And savers and the pension industry might also start recovering …)

The developers know this damn well. Yet they continue to argue that there is a shortage of housing – because it is in their interests to do so.

The sooner politicians stop listening to these weasel words, the better for all of us.


Episodes of exuberance in housing markets: in search of the smoking gun

For decades, the housebuilding lobby has repeatedly screeched, like ducks with limited vocabularies, that the problem of housing unaffordability can be solved by building more and more houses.

This incessant diet of propaganda – tastily flavoured, no doubt, by the accompanying political quid pro quo – has been swallowed whole by successive Secretaries of State for Communities and Local Government.

This old and worn canard needs to be shot. And finally some serious research is proving just what a load of old tosh the housebuilders’ claims are. Please bear with us through some slightly technical language …

Dr Alisa Yusupova of the Management School at Lancaster University has just presented a paper to the Royal Economics Society analysing the UK housing market with innovative statistical techniques. The conclusion she comes to is that much of the movement in house prices over recent decades has been driven, not by a shortage of houses, but by speculation and exuberance.

Where does that speculation and exuberance originate? (This is us speaking here.) In Quantitative Easing – the Bank of England’s policy of holding interest rates well below their natural level by flooding the financial markets with freshly made money. As one of the City’s most respected economists, Albert Edwards, put it last year:

“I’m sorry, but if monetary policy is too loose, you can concrete over the entire length and breadth of the UK and house prices would still rise. There is no shortage of housing. What there is, is an imbalance between demand and supply and demand is excessive because of crazily loose monetary policy. It’s as simple as that.”

To us that sounds eminently sensible. No-one round here expects, say, that if the Jockey Club and Redrow build 3000+ extra houses at Kempton Park – or even develop the entire Green Belt around London – it would have even the slightest effect on making housing more affordable.

Just like an ounce of gold, the price of a house can go up and down. And house prices have gone up too far in recent years. That is because house are viewed by many simply as investment assets, forgetting the fundamental purpose of a house, which is to keep the rain off your head.

Various media articles relating to this topic can be found at the following links:


… or they'll pave paradise and put up a parking lot …

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