It will come as no surprise that the UK government is looking to help first-time property buyers in the UK. The government has experienced severe criticism because of a variety of housing promises ahead of the last general election which have yet to be acted upon. While George Osborne surprised many with his U-turn on welfare cuts it was no surprise to see an additional £2.3 billion allocated to the so-called “Starter Home Initiative”.
However, there are concerns that short-term assistance for first-time buyers could exacerbate the problem in the UK property market which has been worsening of late.
Short-term gain, long-term pain
There is no doubt that those looking to acquire property for the first time in the UK are struggling to climb onto the ladder. The culmination of reduced affordability, increasing property prices and strict mortgage regulation has all played a part in these challenges. So, it seemed inevitable that the UK government would eventually look to increase funding for first-time buyers. However, many experts are concerned that this short-term assistance will worsen the long-term challenges facing the UK property market.
In the longer term there is no doubt that UK property prices will be squeezed higher as additional funding for first-time buyers, as well as those looking for shared ownership accommodation, has a greater impact upon the market. The real problem in the UK is not funding, it is not demand but simply the widening gap between supply and demand. The real issue in the eyes of many experts is a lack of new affordable housing in the UK.
It was interesting to see that the UK government has promised a further 400,000 new builds across England by 2020. These will take in an array of rented accommodation (available below market rental rates), shared housing and full-blown first-time buyers with financial assistance from the authorities. This has been welcomed by the construction sector although unfortunately we have seen many newbuild promises in years gone by fail to materialise in real life.
There are also other issues to take into consideration such as a lack of skilled labour to fulfil this pledge, a general lack of finance for construction companies as well as the general uncertainty which surrounds the UK (and the worldwide) economy. Interestingly, the ongoing attack on the UK buy to let market may well reduce investment in this particular area and increase supply for first-time buyers. However, we will see if this current attack on buy to let investors continues.
While the various promises and funding initiatives announced by the Chancellor of the Exchequer were well received, there could be further pain in the longer term. UK house prices continue to rise, despite a benign economy, and increased funding for those who would not normally be able to afford to acquire property could be seen as a short-term stop gap.
However, looking longer term this increased demand for property, against a genuine supply problem, could see more damaging long-term challenges.