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Is Help-To-Buy Coming To An End?

21st December 2016

There is speculation in the press that first-time buyers will ‘ditch their plans’ to get on the housing ladder when one of the Help-to-Buy schemes ends, with further concern that lenders will become more reluctant to lend to those with a small deposit.

e-Surv Chartered Surveyors, have announced that national mortgage approvals grew 1.3% in November 2016 compared with the previous month (this would appear to be forecasting ahead of official data) – but it has stated that the majority of loans are going to those with larger deposits.

The national surveying firm says 64,407 house purchase mortgages were approved in the month of November, which is above the 62,522 recorded for October but remains below the 70,511 approvals a year ago in November 2015. This would concur with our lower volume of sales due to lower overall stock levels for 2016.

The figure also remains below the 2016 peak of 75,512. This figure was recorded in February and they have been artificially boosted by buyers making house purchases before April’s Stamp Duty changes.

Moores didn’t witness a significant increase in sales activity in February or March, and I suspect the data being referred to is skewed by London-centric activity. We did see a number of buyers who were due to complete around late March/early April but put pressure on their lawyers to ensure the deal went through pre-April, for obvious reasons.

We are seeing a significant number of borrowers with large deposits involved in purchases but this does not appear to have changed significantly when compared to last year. Many of our buyers are families purchasing semi-detached houses between £200,000 and £400,000 and they have substantial equity from their existing homes to transfer. Most investment property occupied by students are selling to landlords with 30%+ deposits and smaller Buy-to-Let investments are being purchased by either cash buyers or those with 50%+ equity to invest.

Despite some very low interest rate mortgage products having been withdrawn in the last week or so, I’m remain convinced mortgage rates will generally stay at record low levels for some time to come. If transactional volumes are going to remain relatively low, banks and building societies will need to remain competitive to attract new business (borrowers) and therefore their margins will remain tight.

With more and more lenders offering 90% and 95% mortgage products it shouldn’t come as a surprise that the Government is closing one of its Help-to-Buy mortgage guarantee schemes. The scheme ends on 31 December after 3 years of allowing purchasers to buy either a second-hand or new home with a 5% deposit. According to research produced for Aldermore Bank, raising a deposit continues to be the biggest obstacle for potential first-time buyers, with 39% of respondents stating that raising a deposit is a bigger hurdle than property prices themselves (34%) which is interesting. Does this mean house price rises won’t deter buyers so long as they can afford the repayments? Sounds very much like 2005 and 2006 all over again. There are other schemes which continue, including the Government’s Help-to-Buy ISA scheme but the withdrawal of this specific scheme, which has helped many of our buyers in 2015 and 2016, will be a hindrance to some of those seeking a foot on the housing ladder. I suspect we will once again see the ‘bank of mum and dad’ come to the rescue for a number of first time buyers, as we did in 2012 – 2014.

Those who abandon the pursuit of a foot on the housing ladder will no doubt turn to, or remain, in the rental market. There is already a severe shortage of rental property in the market combined with a strong demand from professional tenants (we are letting one and two bedroom flats on the first viewing at the moment!) rental values will no doubt rise again in 2017. After rent increases over the last two years averaging 10%, further increases in rental income will make Buy-to-Let even more attractive, despite recent changes to Stamp Duty, Wear and Tear Allowance, tax relief on mortgage interest, etc. Gross yields of 6%+ have been consistent in 2016. I suspect we may see these top 7% in 2017.

By Michael Moore, FNAEA, MARLA, Senior Partner

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