The End of Help To Buy? Part II

With the unprecedented economic impact of Covid-19, is the residential property market ready for the partial removal of the Help To Buy scheme in 2021. The shutdown of the market through April and May, and the significant slowdown in construction rates will have a long-term impact on the sector, so is April 2021 the right time to limit the use of the scheme to first time buyers with regional price caps.

An extension could assist with building consumer confidence in the market. It may also provide housebuilders with breathing space while they adapt to the new ‘norm’ of construction life. Construction will significantly slow in the next few months as housebuilders look to adapt to the new social distancing measures required on a construction site, and this in turn will influence sales rates for housebuilders.

There was a sharp and significant drop in new build and second hand transactions across the country in April and May, there has been an initial spike in buyer enquiries, but it is still not clear when the transaction levels seen pre-lockdown will bounce back. The real impact on house prices in some regions is difficult to predict and the knock on effect could be here for years to come. An extension to the scheme, together with record low interest rate levels, could assist in a recovery for the housing market and bring back buyer confidence, particularly from the first time buyer sector.

Whilst there are now record low interest rates, the impact on the mortgage market has been detrimental with lenders now adopting a risk-averse position, so access to these rates is difficult for many in the market. There are significant amounts of potential purchasers on furlough, or with wage reductions, who are now unable to obtain the mortgage they were once able to do so. Buyers who may have wished to use the scheme to assist with the purchase of their next home may now be unable to do so prior to April 2021.

The delay in construction completions is likely to make delivery of new homes across the sector very challenging. Flexibility to move completion dates in line with an extension of Help To Buy may prevent withdrawal of sales and the subsequent impact on the housing market. According to the Help To Buy guidance, purchasers looking to complete prior to April 2021 will need to be in the process of agreeing a sale on a new build this autumn, so perhaps flexibility to complete beyond the April 2021 deadline would be a welcome change.

Whilst there are calls to extend the scheme, there are also many pushing to end it as originally planned. The further impact on the taxpayer’s pocket, at a time when the nation is taking on significant debt, may be another subsidy we do not need. The question whether there are alternatives available in the market to help bridge the void remains though. There will come a time when the industry must move on without the subsidy though, so are the calls to extend the scheme necessary. 

The Government are yet to give an indication whether an extension is planned, raising questions around how the market will bounce back, and how developers will cope with the lower construction and sales rates heading into 2021. The significant economic impact of the virus poses a very new challenge for the industry, particularly without Help To Buy.