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Last updated: March 20, 2013 4:34 pm
Housebuilders were among the biggest winners in Wednesday’s Budget, as a “gamechanging” move to boost mortgage availability was extended to older properties.
Shares in the UK’s biggest housebuilding companies soared as a result. Barratt, the biggest riser, gained 6.5 per cent to close at 255p. Around a quarter of housebuilders’ sales in the past year have already benefited from government schemes to boost mortgage availability and although the industry had been clamouring for more support, the size of Wednesday’s boost nevertheless took the industry by surprise.
Analysts called the new “Help to Buy” scheme a “game-changer”, but warned it could trigger a sudden rise in house prices. Robin Hardy, analyst at Peel Hunt, said the move would boost housebuilders’ earnings as well as driving house price inflation.
“Every £1 on the selling price is £1 on the pretax profit so there would be massive scope to increase profits simply by selling the same houses you were going to build and sell anyway,” said Mr Williams.
“As a policy for driving economic growth – limited. For solving the national shortage of housing – no impact. For wrecking long-term affordability of housing – tremendous. This cannot help but push up the sector’s earnings but it does very substantially lower the quality as the house builders now become extremely dependent on continuing state intervention.”
The chief measures were a new “Help to Buy” guarantee, which encourages lenders to provide 95 per cent mortgages. The government will underwrite the risk on up to 20 per cent of the loan with a new indemnity fund. Unlike previous schemes, the guarantee does not require a contribution from housebuilders and applies to all property purchases, rather than just new build properties.
A “Help to Buy” equity loan will also be extended to all home buyers purchasing any new-build homes up to a value of £600,000, regardless of their personal incomes. Buyers will need only a 5 per cent deposit, with the government investing 20 per cent, which will be repaid when the property is sold. A commercial lender will provide the rest.
Noble Francis, economics director at the Construction Products Association, called the Help to Buy scheme a “game changer”. “This should feed through to a major expansion of housebuilding over the next few years, especially in key areas of demand like London and the southeast where raising a deposit has been an issue.”
Pre-tax profits at the big seven housebuilders– Barratt, Bellway, Berkeley, Bovis, Persimmon, Redrow, Taylor Wimpey – have already increased by as much as 66 per cent between 2011 and 2012. Despite this the number of new homes being built remains at record lows, with around 115,000 homes developed last year – the third-lowest since 1947 and around half the estimated need for the UK.
Jeremy Raj, residential property partner at Wedlake Bell, the City law firm, agreed that the scheme would also boost house prices. “It will serve primarily to prop up house prices, rather than bringing them down. The only sure way to achieve affordability is to calm the market down by creating more supply.”
A fivefold government funding increase to kick start build-to-rent schemes was also welcomed by the property industry. The £200m made available in December’s Autumn Statement will be expanded to £1bn, and will provide equity or loan finance to support development stage finance.
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