Posted: 23rd April
Win, win, win for house building firms
Things are looking good for house building firms. New builds are flying off the shelves and people are ready to take their first leap onto the property ladder into these brand new homes, thanks to the government’s Help to Buy scheme that George Osborne recently extended from 2016 until 2020.
The help to buy scheme is undoubtedly a way to encourage house building in the UK, which has lagged behind demand for several years and an aide to Mr Osborne commented: “The Help to Buy equity loan is a far more efficient way to promote housebuilding than government spending, as it leverages private money.”
It’s no surprise then that Britain’s four biggest listed house building firms have increased in market value by £7.2bn (or 81%) since the start of 2013 during the period which the government introduced their scheme. And the extension of the scheme will mean another £6bn invested to help an estimated 120,000 more households purchase a newly built home.
A separate element of the Help to Buy introduced last year, which has not been extended, is the offer of £12bn of mortgage guarantees to lure lenders back into making high loan-to-value ratio advances of up to 95% of the value of homes.
The Bank’s deputy governor, Charlie Bean, said policymakers were keeping a ‘beady eye’ on the market and he warned that a lack of supply, combined with excessive growth in mortgage lending, could create future financial stability risks. Some fear that Help to Buy may well backfire by pushing up prices beyond the means of some of the people – such as first-time buyers – that it is supposed to be helping. There are concerns that the second phase of the scheme (the aforementioned mortgage guarantee offered on new and existing homes worth up to £600,000) is pushing prices too high in London and the south-east. The Bank’s governor, Mark Carney, has already said he is watching the housing market closely for signs that a bubble may be emerging and that policymakers stand ready to raise rates if needed to curb prices.
This warning had an impact on house building firm shares in recent weeks, but Osborne’s intervention was enough to provide a sharp boost.
The mortgage lender Halifax reported that house prices in February 2014 rose at their strongest annual rate since 2007 – up 7.9% on a year ago to £179,872. Although average values were still 10% below their 2007 peak.