Real Estate Investor Magazine South Africa July 2013 | Page 56

LONDON

BY MIKE SMUTS

Help To Buy
London’s new housing scheme

A

ga inst t he now a l l-too-fa m i l ia r
backdrop of economic turmoil in the
Eurozone and the ongoing questions
regarding the speed and timing of the global
recover y – the London propert y market
continues to prosper.

Si r Mer v y n K ing recent ly sa id in a n
interview with Sky News that the Help To Buy
scheme was “too close for comfort” to the US
mortgage guarantee schemes that triggered
the financial crisis and must not be allowed to
become permanent.

Official figures from the Land Registry show
that London house prices rose 6.2 per cent in
the year to April to an average of £375,795.
The monthly increase from March was 1.4 per
cent, according to the Land Registry.

The scheme, unveiled in the Budget, will
see the Government guarantee up to 15% of a
mortgage on properties worth up to £600,000
and is due to run for three years.

The biggest jump was in the borough of
Camden, with an annual rise of 11.8 per
cent. Prices in Merton rose by 11.4 per cent
compared to last year, in Hammersmith and
Fulham by 11 per cent and in Wandsworth by
10.8 per cent.

Help To Buy comprises two parts: sharedequity loans and a mortgage guarantee. The
shared-equity part of the scheme has already
begun and offers a 20 per cent equity loan
to anyone, not just first-time buyers, buying
a new-build home, meaning they can do so
with just a 5 per cent deposit.

London property prices are still racing ahead
of other UK regions, but according to analysts
UK house prices as a whole will surge by at
least 8 per cent and could even reach 13 per
cent over the next few years.

The guarantee part of the scheme starts in
January 2014 and will incentivise lenders
to offer those with smaller deposits better
mortgages, because the Government will
guarantee 15 per cent of the loan.

The average UK home was worth £167,912
last m onth, up 1.1 per cent on the previous
year, but analysts at Morgan Stanley predict
house prices will rise 8 per cent as a whole with
increasing lending and driving up bank profits,
aiding further recovery in the housing sector.

But although there is insistence that Help to
Buy is not aimed at pushing up prices, experts
say encouraging first-time buyers to take out
mortgages with high loan-to-value ratios will
do just that. The Organisation for Economic
Co-operation and Development (OECD)
has warned that “without a sufficient supply
response, some measures could create upward
pressure on house prices”.

The f igures come as leading economists,
the outgoing Bank of England governor
Sir Mer v yn King and former Chancellor
Alistair Darling are all warning that the
Government’s “Help to Buy scheme” could
fuel property prices.
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July 2013 SA Real Estate Investor

There is of course always the potential
of pushing up prices in any initiative that
increase demand for housing – especially

while supply is still very limited and we may
very well see some very strong growth over
the next year.
The success of the scheme will however lie in
the UK Government’s ability to use this impetus
to encourage more housing starts by the UK’s
house builders in order to relieve some of the
pressure on the supply side of the equation.
Just as importantly they will need to keep tight
control over were the Help to Buy funds flow to
ensure it benefits First Time Buyers (FTBs) who
are crucial to a well-functioning housing market.
It is a well-known fact that First Time
Buyers are the lifeblood of the property market
but they also play a key role in economic
development. It is estimated that for every one
buyer who purchase a home for the first time, a
further six transactions are created further up
the housing ladder.
Each such transaction creates economic and
employment opportunity for those working
in the industry. These may be as direct as the
estate agents, solicitors, surveyors, mortgage
brokers and banks working on each transaction
or opportunities that are created indirectly for
furniture manufacturers and suppliers, moving
companies, painters and decorators.
For an economy like the UK, heavily dependent
on service sector industry, a well-managed “Help
to Buy” scheme may just be a helping hand for
far more people than just those getting on the
property ladder.

RESOURCES

Smuts & Taylor

www.reimag.co.za