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Help to Buy scheme to end in October, what now for new home sales?
It has been seen by many as a ‘middle class’ way to get their children on the housing ladder, whereby buyers can get 20% of a property as an equity loan – 40% in London. Over the last eight years, the Government-backed Help to Buy Scheme has loaned over £24 billion. Now, two months earlier than expected, the scheme is ending with a cut off date of 31st of October.
Critics say that Help to Buy has fanned the flames of new home prices and given buyers an unfair advantage regarding mortgage finance. Having a 20%+ deposit certainly helps people get a better deal from a lender, far better rates than a 10% deposit many first time buyers might have.
The argument against housebuilders has been that they can inflate their sale prices as there is a rich vein of first-time buyers each year, who will utilise Help to Buy. They argue that the asking price is never an issue, as a buyer for the first five years is really financing 80% or 60% of the buying in price.
So if a semi-detached home was £350,000, they would get £70,000, or in London £140,000 of the cost covered by the equity loan, financing only £280,000 or £210,000.
The real kicker has also been that with a rising housing market since 2013, with a few bumps along the way, buyers using the scheme have also seen significant rises in equity in their homes. True 20% or 40% of that equity belongs to the fund and if they sell up, they only retain 80% or 60% of the uplift.
But that can be substantial if say a home in 2017 was worth £350,000 and now sells for £500,000 that is an uplift of £150,000, 80% of which goes to the homeowner at the point they move, a £120,000 cash windfall.
Officially the scheme was meant to end in March 2023, but to get through all of the red tape, the end of October will be the last point at which buyers can get on the scheme. Will this in itself create a mini new homes boom? Probably. Will homebuilders be able to raise prices? Probably.
The bigger question now though is what will Michael Gove do, if anything, to fill the vacuum?
If it is removed, will many of the 400,000 first time buyers each year feel that buying a new home is a very expensive way to start their home owning journey?
Boris Johnson is in a bind, with the clock ticking regarding a new election in two years. Where will he place his strategy around free cash for homeowners?
Many feel that he may look to revive the Thatcherite ghost of selling off housing association properties, a revamp of buying your council home, which won the hearts of the country in 1987. It of course helped deplete the amount of property in the sector that needs it the most, but it wins elections.
Might the government replace Help to Buy for majoritively middle class buyers, and look at stoking up a funding scheme for less well off people to get on the housing market? The government’s big problem with inflation close to 10% is that we are all less well off now, and soon the government handout schemes may no longer be sustainable.
Is there a solution to the volume of failed exchanges?
Nigel Lewis reported today in The Negotiator that HBB had contacted a number of agents and found what their thoughts were regarding aborted sales.
Nigel Lewis wrote: “An industry survey has revealed the corrosive effect of sales fall-throughs on estate agency businesses over the past 12 months.
“Some 950 property firms were asked by buying agency HBB Solutions about their experiences of transactions falling through.
“The biggest issue for them was that it had wasted their time while progressing a property sale once a buyer was found, a problems reported by 41 per cent of those canvassed, with wasted financial resources also a major issue for 34 per cent.
“Also, a third said that, following a sale falling through, their vendor then chose to re-list with another agent, even when they were not to blame.”
My own personal thoughts as a former agent of 30 years, before spending the next six years looking at the best way to digitally transform companies to be fit for purpose, is that as agents digitally transform their operations, creating better outcomes and more transparency around the property asset, there will be fewer fall-throughs.
Statistically, very few buyers get buyers’ remorse. Sales fail due to a range of micro-problems that delay and deter. If buyers knew 100% what they were buying, because the property had attached to it every data set that a lender/conveyancer and buyer required, and it was in plain sight day one – and if the buyer also was forensically pre-qualified prior to a sales memorandum ever going out – agents would get faster, better sales.
Software is coding the future, and with open banking, digital identity, and development in the lending and legaltech space. There is a ‘push’ from buyers and sellers wanting a fast reliable journey, much the same as Cazoo style car buying solution.
It’s no coincidence that the founder of that enterprise, Alex Chesterman, also founded Zoopla in 2007.
Andrew Stanton is the founder of Proptech-PR, a consultancy for Founders of Proptechs looking to grow and exit, using his influence from decades of industry experience. Separately he is a consultant to some of the biggest names in global real estate, advising on sales and acquisitions, market positioning, and operations. He is also the founder of Proptech-X Proptech & Property News, where his insights, connections and detailed analysis and commentary on proptech and real estate are second to none.