The Government’s temporary hold on the requirement for developers to provide affordable housing is aimed at boosting construction but it will be a blow to those looking for affordable housing to buy for the first time or rent in the next 2 to 3 years.
It’s a policy which will be in place for approximately 18 months, and arguably counter-productive to the aim to get the housing market moving as indicated by other policies such as the raising of the Stamp Duty threshold to £500,000 until March 2021.
The stamp duty change may help many, particularly those with cash reserves but first-time buyers are at the sharp end of the housing market. Not all can rely on financial assistance from family and the market needs first-time buyers.
Mortgage applications have risen since lockdown started easing but getting a mortgage is also more difficult currently than it has been the past 10 years.
The increased risk of unemployment is naturally making banks cautious. And with the furlough scheme, which has been propping up businesses, coming to an end in the Autumn, unemployment rates are expected to spike.
Mortgage lenders quickly pulled high LTV mortgages which were vital for most if not nearly all first-time buyers. So where does that leave those who are working in lower paid jobs – not on furlough – but otherwise appear to be in good financial health?
The current mortgage landscape is seeing LTVs at 85%, with a couple of lenders offering 90% LTVs but many lenders still offer below 85% LTV only, usually around 60% – 70%. This means first-time buyers are temporarily locked out of the housing market for the next year or until lenders relax their lending risk profile regarding high LTV mortgages.
Building up a deposit of 10% or 15% is an impossible short-term challenge for many. The Help to Buy ISA is closed and interest rates on savings are still woefully low compared to the pre-financial crisis of 2008.
Many who would be able to purchase a property will now either have to consider a much smaller sized property or not buying at all with the current availability of stock.
So what options does that leave first-time buyers?
The Help to Buy scheme and Shared Ownership seem to be the only realistic avenue available to first-time buyers. And while these schemes have helped thousands of people reach their dream of owning their first home and getting onto the property ladder, they aren’t without their challenges.
Help to Buy typically requires a higher outlay for the deposit compared to some shared ownership options and there is also the liability of a Government loan. However, it does give 100% ownership which means buyers can capitalise on all of any potential equity gains when selling on in the future.
Those developers who can offer Help To Buy will no doubt get a lot of interest.
Shared-ownership has a lower entry rate as you are only buying a share, with the opportunity to staircase to full ownership at a later date. However, buyers need to meet certain criteria. You can find yourself earning too much to qualify but not enough to afford a property on the open market.
And it is hugely competitive with demand for properties often outweighing availability of stock.
But demand for housing generally hasn’t gone away and now is the time for developers and local authorities to put their foot on the gas, not only to address the housing shortages but also help the economy and the industry.
Increasing the supply of new-build homes, not just apartments but also much-needed houses would be welcome news for first-time buyers and even in the current economic climate are likely to see strong demand.
If developers and local authorities can collaborate and accelerate plans to get construction on new schemes underway, new build homes and first-time buyers might help to offset the potential for a market slowdown in 2021. The new Help To Buy scheme arriving next year could further help.
More first-time buyers would also come forward if the Government was to alter its position on the current Help to Buy scheme and allow purchase off-plan for properties completing beyond March 2021.
There are also wider economic benefits for the Government supporting the housing market, developers and first-time buyers in this way. Growth in demand would help prop-up house prices, incentivise developers and boost construction activity.
And this would inevitably be good for keeping people in the industry in jobs and supporting training schemes and apprenticeships which are needed for the longer-term future of construction.
Developments, whether they are residential or infrastructure-focused drive long-term business growth and help create jobs and opportunities. Something that in the months ahead would be more welcome news.
If there is a time to put a positive focus on a negative situation, the time is now.
Words by Rishi Rai, Associate at Bruceshaw