Mortgage help sparks boom – and fears of another crash
If you think prices are rising, just wait until 2014, as the full impact of Help to Buy hits home. By Graham Norwood
Saturday 27 July 2013
It is widely accepted that the Government's Help To Buy scheme is already aiding the recovery of Britain's housebuilding industry, but analysts fear another initiative being launched in a few months risks creating a housing market bubble.
Under the Help To Buy Mortgage Guarantee Scheme, details of which were announced a few days ago, a buyer needs only a 5 per cent deposit, while participating lenders would have the next 15 per cent of any loan underwritten by the taxpayer.
So even if property values fell by 20 per cent, the lender would not be out of pocket: the buyer and the tax-payer would bear the loss.
To qualify for the guarantee, which comes into effect on 1 January next year, an applicant can be any age and can be a first-time buyer or an existing owner, but household annual income should not be above £150,000.
The home they want can be brand new or already built and owned, but must cost £600,000 or less and cannot be a shared ownership or buy-to -let property. In other words, the scheme is for existing or would-be owner-occupiers.
The scheme goes much further than existing government initiatives to kick-start the market, notably the Help To Buy scheme introduced earlier this year. That measure applies only to new-build homes costing £600,000 or less and involves buyers receiving a 20 per cent equity loan, interest-free for five years.
Despite such restrictions, Help To Buy has had a dramatic impact on the market. More than 7,000 buyers have signed up since it was launched in mid-April and some 1,250 have already moved in to their new homes. First-time buyer numbers are at a six-year high, with 25,100 loans issued in May, up 42 per cent on the same month last year, according to the Council of Mortgage Lenders.
This surge has forced the property establishment to revise its predictions for price growth. Halifax says values are now 3.7 per cent up on summer 2012 – the biggest rise in three years – and Savills, the estate agent, predicts that prices will soar 18 per cent by 2017.
But the new mortgage guarantee scheme is widely expected to create a much more dramatic rise in sales volumes, and therefore prices, setting off alarm bells.
"It's a racing certainty that buyers are going to fill their boots with tax-payer guarantees," housing industry analyst Henry Pryor says. "I expect sales of £450,000 to £600,000 homes to bounce as the Government helps people to buy what they would otherwise be unable to afford."
The estate agent Hamptons International says it welcomes the guarantee's overall aim of helping existing owner-occupiers whose equity has been eroded in recent years by house price falls of up to 25 per cent in parts of the UK, but it admits there are downsides.
Fionnuala Earley, Hamptons' research director, says: "It does raise questions about whether it's wise for borrowers to take on higher percentage loans when households are already heavily indebted." She also warns that mortgage guarantees may push demand for homes ahead of supply, "thus exacerbating both poor affordability and the need to borrow higher percentage loans to buy a house". These warnings follow the release of data showing higher loan-to-value lending: the latest Council of Mortgage Lenders figures show that in May the average first-time buyer secured a mortgage equivalent to 83 per cent of the property value, the highest ratio since November 2008.
Critics also cite a warning by the former Bank of England governor, Sir Mervyn King, that the UK should avoid repeating the errors in the United States where government-backed mortgage guarantee schemes have had to be bailed out.
However, the Government says there will be rigorous "stress testing" of applicants to ensure they have the income and credit records to ensure they can afford the new guaranteed mortgages. Ministers insist the existing Help To Buy initiative needs this mortgage follow-up to ensure the housing market recovery takes hold in the long term.
Housebuilders Bovis, Persimmon, Taylor Wimpey and Barratt have all reported increased sales and profits thanks to Help To Buy. Barratt's sales of 13,663 homes in the year to the start of July marks a dramatic 34 per cent rise on the previous 12 months.
Stewart Baseley, the chairman of the Home Builders Federation, which represents more than 80 per cent of all developers in the UK, says: "Large deposits to secure a mortgage prevented many from buying. The scheme helps consumers overcome that barrier and will undoubtedly lead to an increase in building. We're seeing companies revise build levels, which in turn will create jobs and deliver an economic boost."
Jeff Fairburn, the chief executive of Persimmon, explains: "In addition to helping [overcome] the housing shortage, this will have benefits for jobs and the economy. For example Persimmon has already decided to make significant further investment in trade apprentices this year to support the anticipated increase in output." While the mortgage guarantee scheme will apply to the whole of the UK from the new year, the Help To Buy initiative applies only to England. However, regional governments are now following the Coalition's lead.
The Welsh Government is to introduce its own version along with a separate initiative called NewBuy Cymru – a Welsh variant of a measure operating now in England, which involves property developers and the Government jointly underwriting mortgage lenders. This allows buyers to secure a home with a lower-than-average deposit.
The Scottish Government has announced a £120m version of Help To Buy which, like the English version, applies only to new builds.
But doubts remain. Peter Williams, an analyst at the Acadametrics housing consultancy, says: "There's a general view that the short-term outlook is quite promising. But in the medium term, as government initiatives fall away, market uncertainty will return."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Buying property overseas? Check out these hotspots
China stock collapse: Five things you need to know about 'Black Monday'
Bargain Hunter: Exclusive discount on a SmartGlider - a self-balancing electric scooter
My Tinder date asked for a refund when I declined a second meet up
The 10 Best money-saving sites
- 1 If you're not already angry about the migrant crisis, here's a history lesson to remind you why you really should be
- 2 David De Gea: Manchester United goalkeeper's £29m move to Real Madrid off - because paperwork 'not done in time'
- 3 Pansexual: What is it - and when did the term gain popularity?
- 4 A Chinese journalist has appeared on state television 'confessing' to causing the stock market chaos
- 5 Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
Tony Blair attacks Jeremy Corbyn's 'Alice In Wonderland' politics
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
UN investigating British Government over human rights abuses caused by IDS welfare reforms
iJobs Money & Business
£20000 - £25000 per annum + competitive: SThree: Are you looking to take your ...
£20000 - £40000 per annum + competitive: SThree: Exciting career prospect for ...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
Day In a Page
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.