Feature Buying Bubble

New figures show that the Help to Buy scheme is surging head with more than 10,000 reservations for new build homes in the last 4 months, but concerns are being raised over the real value of the government’s flagship scheme.

While the government believes that the equity loan scheme is giving the confidence to house builders to deliver and build more new homes, new analysis by NatCen Social Research for Shelter – the housing charity – shows that the where banks are failing to help out struggling first time buyers, parents are paying out £2 billion every year to help their children get on the housing ladder.

Since 2009, more than a quarter of UK first-time buyers relied on help from their parents to raise a deposit – with the average contribution from parents totalling £17,000 – more than half of the average deposit of £28,000.

“The fact that the Bank of Mum and Dad has to play such a central role in our housing market shows just how desperate the situation has become for a generation that’s priced out of a home of their own, says Campbell Robb, Shelter’s Chief Executive.

And although new housing supply is at its highest level since 2008 – with a total of 319,000 additional homes across England added to housing supply in the past two years – official figures show the number of new homes completed in the first quarter of the year was the lowest level since 1990 at just 24,330.

Earlier this week the Council of Mortgage Lenders (CML) reported that the number of first time buyers is at its highest level since 2007, with 68,200 purchasing their first home in the second quarter of 2013. But this latest data also shows that many first-time buyers are borrowing more because of the recent growth in house prices – with the average loan size rising from £112,500 in May to £117,000 in June.

But despite claims by housing charities and analysts that the government’s schemes are encouraging people to overstretch themselves, Eric Pickles, the communities secretary, has rebuffed the concern, arguing that the coalition’s package of measures to boost housing was working, with “house building and housing supply on the up”.

“The tough decisions we’ve taken to tackle the deficit are now delivering a sustainable increase in housing and providing real help to hard-working people,” Pickles says.
Adding: “it’s clear that the Help to Buy: Equity Loan scheme is working well and Britain is building again.”

The industry has also hit back at the claims – with many housebuilders praising the scheme for addressing the issue of mortgage finance – particularly as this increased access to finance is enabling many house builders to increase their output levels to meet increasing demand.

“Interest has been particularly encouraging from customers previously locked out of the market by high deposit requirements,” says Mark Clare, chief executive of Barratt.

“Our production will rise to meet higher levels of demand and it’s likely that our completions this year will be up 20% on 2 years ago,” adds Clare

But as a Nationwide spokesperson explained, the supply side of the market still remains fairly constrained: “building activity is still subdued – in Q1 13 housing completions in England were down 8% compared to the same period of 2012.”

And Kate Faulkner, property analyst and commentator believes that we still have an enormous way to go before transactions reach pre-credit crunch levels.

“Currently, the number of homes sold remains 40% down versus the long term average,” Faulkner explains.

“Housing associations, developers and institutions now need to double the production of new homes, while sellers need to be sure they can afford to make the next jump ‘up’ the ladder while it’s still cost effective to trade up,” she adds.

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