Latest News

Urgent reform to leasehold needed

19 March 2019

In a report published today, 19 March 2019, the Housing, Communities and Local Government Committee has called for wide ranging reforms to the leasehold system. Read More...

Referral fees guidance must be taken seriously

19 March 2019

The National Trading Standards Estate Agency Team (NTSEAT) has published guidance on referral fees received by estate agents across the UK, with the aim of making previously hidden fees open and transparent to consumers. Read More...

NAEA Propertymark submits evidence on the Draft Registration of Overseas Entities Bill

15 March 2019

The Joint Committee on the Draft Registration of Overseas Entities Bill issued a Call for Evidence earlier this month. Read More...

 

Is Help to Buy distorting the market?

Wednesday 12 December 2018

Last month, Government figures reported that more than 400,000 people have now been able to purchase their first home by using one or more Help to Buy scheme.

So, we caught up with NAEA Propertymark member Simon Wilkinson, from the Wilkinson Partnership in Leighton Buzzard, to ask his thoughts on Help to Buy, and whether it is distorting the market? Here's what he had to say...

“I would guess that every estate agent in the UK would applaud a Government that was helping first-time buyers to get into property ownership. But the laws of unintended consequences may well be at play.

“In April 2013 the Government launched the ‘Help to Buy’ scheme across the UK for first-time buyers, but only on new homes. The original scheme offered a Government shared equity loan on 20 per cent of a property provided the buyer could put down their own five per cent deposit. Thus, if the property increased in value, the Government made a profit. Wow, I hear you say, a Government speculating on the property market with tax payers' money?

“You might also question why this was allowed at a time following the crash of 2007 and the Bank of England lead Mortgage Market Review (MMR) was restricting the very risky lending that contributed to the crash in the first place. The MMR curtailed the banks and building societies to only lending to first-time buyers who could afford the loan, through their own means and yet here you have a contrary mechanism that in many respects undermined the Bank of England – bizarre.

“The scheme evolved and was extended to Wales and Scotland. It changed to become the Mortgage Guarantee Scheme, available nationally whereby a buyer could put down five per cent deposit with a further 15 per cent then being guaranteed by the Government to the lender on a 95 per cent mortgage basis. Staggeringly this was available up to £600,000, for both new and second-hand homes, although perhaps this is not widely known. Recent statistics show that some 183,947 properties have been purchased this way, but for many of these buyers, they are now paying interest (from April 2018) on any outstanding deposit monies and more will follow as there five years expires.

“But the problems grow, most of these schemes have been used on brand new one–and two-bedroom flats–for which typically a premium was paid for them being ‘new’, and the house builders would have profited nicely. 

“Local Planning Authorities (LPAs) with challenging house-building targets have consented multiple sites for flats to hit their government-set targets, with some LPAs committing over 80 per cent of all new-builds to being one and two-bedroom flats. The knock-on effect has been a very restricted supply of the next rung on the ladder house types – two and three-bedroom houses with gardens for young families. And with this has come a significant distortion as the rungs of the ladder–usually evenly spaced–have been stretched apart and so decreasing mobility for the first-time buyer that needs to move up the ladder to a bigger family home.

“Additionally, the George Osborne inspired hikes in Stamp Duty Land Tax rates have also added to a huge reduction in buyer mobility, and for many, this tax prompts home improvements rather than a move up. Ridiculously the Treasury receipts from this tax are now lower than in 2015, so we must ask the question - has it backfired?

“Now at the same time, tax changes have dramatically reduced the viability of property ownership for buy-to-let investors, so simultaneously, they are selling up, exiting home ownership and turning a profit.

“In many markets there are very few buyers for second-hand modern flats, and figures show that prices are plunging (typically 20 per cent since the start of the year in the Home Counties) yes, that's £10,000 a month.

“So as a first-time owner, now faced with: paying interest on your deposit on top of your mortgage; negative equity and prices falling sharply; the gap to move up being further in the distance; and higher Stamp Duty costs, what do you do? A dilemma indeed and one that is very likely to grow over the coming months.

“Ironically though, most of these issues are entirely within the control of the Government, a few tweaks can sort it out. Likewise, we have further good news, being low interest rates and fixed rate mortgages. Economically we have more or less full employment, wage settlements are on the Up and the Economic growth figures are positive, and Brexit – well you tell me?”