Help to Buy rumours shock UK housing market

A report in Property Week suggesting that the UK government might withdraw the Help to Buy scheme before the scheduled expiry in 2021 shocked the UK housing market on Friday morning. Housebuilder shares fell sharply amid concerns that this would directly impact financing for first-time buyers and ultimately their profitability. The Department for Communities and Local Government (DCLG) has denied the rumours, confirming that the UK government is committed until at least April 2021.

Looking to the future

Help to Buy is been a major cornerstone of the UK property market after it was introduced in light of the 2007 worldwide economic collapse. The government has committed to just over £8 billion of finance for the scheme which allows housebuyers to buy property with just a 5% deposit. Since being launched in 2013 the scheme has assisted 120,000 home purchasers although it has not been without controversy!

Critics believe that housebuilders in the UK have been exploiting the Help to Buy scheme with the recent trend in retaining the freeholder on which homes are built, selling the property under a lease and increasing freehold charges year-on-year grabbing the headlines. There are also concerns that a significant amount of Help to Buy funds are assisting housebuilders in increasing their profitability and paying dividends to their shareholders. The freehold/lease issue is being addressed by the government but as for helping housebuilders improve their profits this is pretty much down to market forces.

Investors susceptible to rumours

The very fact that the share prices of the U.K.’s leading housebuilders fell on these rumours suggests that investors are wary and acutely susceptible to damaging stories. While some would suggest there is “no smoke without fire” it does seem as though the UK government is looking beyond April 2021. The UK housing sector has obviously taken this as a very positive development but could austerity hit the UK property market and see government funding actually reduced or redirected?

Working with the UK housebuilding sector

It would appear that rather than closing the Help to Buy scheme early the UK government is actually looking to work with the housebuilding sector beyond April 2021. Whether this means an extension of the scheme or any other form of financial assistance remains to be seen. We know that the UK government is looking to streamline planning applications, encourage the use of brownfield sites and will be placing more pressure on local authorities to improve their successful planning application numbers.

Even as the UK government and the housebuilding sector prepare to extend their current working relationship, this does not help the problem of underfunding for newbuilds in the UK. As we have touched on time and time again, for decades now the UK has been building fewer newbuilds on a year by year basis. This has created the problems we see today, the acute shortage of affordable housing and a lack of suitable property with investors now sitting on the sidelines. It is all good and well supporting UK house prices in the long-term but as a wage inflation continues to lag behind the recent rise in house prices, when will the affordability issue be addressed?

Will wages catch up with house prices?

If you read the press it does look as though UK house prices are starting to “cool off” which in theory should make them relatively more affordable in the future. The problem is that there does seem to be something of an economic pause in the UK ahead of conclusion of the Brexit negotiations. This is likely to see already weak wage inflation coming under more pressure with limited if any net benefit against the slowdown in property price growth. We need a sustained period of wage inflation and limited house price appreciation but the problem is these two go together like a horse and carriage.

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