Warnings of a London property bubble should not derail a successful scheme, says Watson Burton’s Tracy Hall.
Despite initial concerns from some quarters, the first phase of Help to Buy has proved to be successful. Research conducted by Morgan Stanley suggests that just under a third of all new builds in England are being funded by the scheme, which is encouraging news for property developers, builders and the wider house building community.
It seemed something of a backward step then, when Bank of England governor Mark Carney warned of a potential property bubble last month – comments fuelled by the reports of rising house prices in the capital, with figures suggesting a property price increase of more than 17%.
Any suggestion that a London housing boom has been triggered by the second phase of Help to Buy was discarded last week following new statistics released by the Treasury, which revealed that only 5% of purchases had actually taken place in the capital. Encouraging news is that the majority of Help to Buy properties have been bought by those with an income of between £30,0001 and £40,000, with more than 80% of property mortgages going to first-time buyers.
With a clearer indication of Help to Buy now in view, it’s clear that the scheme is helping those that need it most across the regions. Prior to today’s announcement, however, the inclusion of London in any meaningful UK analysis, coupled with the media buzz surrounding the market, has meant that the whole picture has not always been apparent.
Misleading media
The media has largely focused its attention on young would-be homeowners keen to get on the property ladder but struggling to do so, with a steady stream of headlines suggesting that many will never be able to get their foot even on the first rung. In fact, this is only really true for London where rocketing house prices pose a real threat to the property aspirations of the young. Outside the capital, prices are growing more steadily and Help to Buy is assisting first-time buyers to in home ownership and families to “upsize” with the scheme most widely used by those purchasing a property below £125,000.
Shortly following Mark Carney’s speech, the media reported Lloyds Banking Group’s intention to tighten mortgage lending rules, capping loans of more than four times salary in an attempt to cool down the housing market and discourage individuals from excessive borrowing. Closer inspection reveals that the impact of this will be felt mainly in London, however, as the new rules are applicable only to properties over £500,000. If this helps to cool an overheated market in the capital it can only be a good thing.
It’s not all about London
The misconception is that the success of the Help to Buy scheme has contributed to the rise in property prices. Once again, figures released last week highlight that this is simply not true, when the reality is that the larger proportion of Help to Buy completions have taken place in other parts of the country. Continual quarterly updates from the Treasury are key if the industry is to gain an accurate depiction of the UK as a whole.
London has its own underlying forces which are not necessarily relevant to the rest of the UK. Analysing the capital alongside the UK as a whole runs the risk of leading us to question, and potentially to dismantle, a scheme that is clearly benefiting consumers throughout the UK.
Both the industry and the government know that there’s a housing shortage. Help to Buy is just one initiative that is helping to address the problem but is no quick fix. Public anger at the lack of availability of housing has led to some blame being apportioned to developers who are accused of “land banking”, or “sitting” on land while its value continues to increase – but recent statistics show that this is simply not true.
Research carried out by industry lobby group the Home Builder’s Federation (HBF) highlights that only 4% of land owned by major house builders with full planning consent is lying inactive. Most developers want to start digging as soon as possible, and are deeply frustrated by the fact that it can still take up to 12 months to get on site. In reality this speaks more about red tape and our extensive planning processes than it does about the behaviour of developers.
The fact remains that demand in the housing market is outstripping supply across the country and both the construction sector and the government need to persevere. Now is the time to forge ahead and last week’s statistics that look at the UK as a whole unveils a scheme which is already helping thousands of people across the country.
Tracy Hall is a partner at commercial law firm Watson Burton
