UK’s new Help to Buy impact on London property market assessed

The UK’s Help to Buy property scheme is the first initiative that should have an impact on the London property market, it is claimed, with the property market wanting first time buyers who can't afford the city's high prices to benefit.

Although the full details of the scheme that was announced by the government earlier this week have still to be revealed, industry experts believe it has the potential to boost the capital city’s market at the lower end.

London has already surged ahead of the rest of the UK in terms of sales and prices but this is largely due to large numbers of overseas buyers investing in prime property rather than first time buyers who are struggling to meet the larger deposits needed in the city.

Now, as Help to Buy will include properties up to the value of £600,000 it means it is likely to boost sales at the lower end of the market.

However, with ever increasing demand for London properties, Help to Buy is likely to be of little consequence for areas with higher prices. Simon Boulton, sales manager for the Bloomsbury office of London estate agents Stirling Ackroyd, predicts that it will have very little effect for the area given that most people purchasing there are already a few steps up on the property ladder.

On the other hand Nick Karamanlis in the firm’s Hackney office, thinks the area will benefit. ‘With the surge in demand for Hackney properties over the last few years, we have seen first time buyers priced out of the market, as few can raise the necessary deposit considering the average one bedroom apartment is on the market for around £300,000. The Help to Buy scheme is a welcome announcement as it will enable a new tier of buyers to live in this increasingly popular area,’ he said.

But one of the main dilemmas for the London property market at the moment isn't the lack of buyers but the limited availability of stock. Although these announcements might go some way to support and encourage home builders, if that doesn't prove to be the case buyers will find themselves in the scenario where there are even more applicants per property, even higher prices and they will once again find themselves priced out of the market, agents are warning.

According to Jonathan Hudson, managing director of Hudsons Property in London, any scheme to encourage first time buyers or buyers in general to own their own property is positive and progressive.

‘With bank mortgages difficult to come by unless you have a healthy deposit behind you, a scheme which enables equity loans will not only help property ownership amongst those who would otherwise be trapped in rented accommodation or at home with parents, and would drive more revenue through associated costs like stamp duty to the government as well as the economy in general,’ he said.

‘In order for this to happen though, and especially in London, more homes will need to be built and in a lot of cases the only way to expand is upwards, with space at a premium. Perhaps local governments opting out of the relaxing of the proposed planning laws might be more open minded to relaxing the law on mansard additions to buildings as an alternative to boost the housing stock. I can see this as a win win situation and let's hope they resist any temptation for a mansion tax,’ he added.

Another key issue arising from the housing market announcements in the Budget is who will be able to take advantage of the Help to Buy scheme which also has a mortgage guarantee backed by the government. Some claim it could help the well off buy a second home and boost the ability of buy to let landlords to increase their investment portfolios, but government officials say the detail has yet to be worked out.

Others think Help to Buy will, however, help those who need it the most, namely first time buyers and second steppers. ‘With a distinct lack of lending in the market for mortgages from banks, buyers need more options. Like the property investment market, who now rely heavily on monies raised from investors or funds in order to purchase and redevelop buildings, this latest offering from the government is a sure fire winner, assuming the rates offer value for money and the criteria and availability of the loans are made clear,’ said James Bailey, managing director of Henry & James in London.

‘With much of the central London market being purchased by cash rich overseas nationals we need an alternative, secure way of funding mortgages for UK buyers, otherwise sellers will always be drawn towards accepting offers from cash buyers because the money is there ready and waiting. If we could get this scheme to be and feel as good as a cash purchase this will greater help UK buyers, although this effect is lessened the further out of London you get,’ he added.

He also pointed out that for estate agents operating in prime central London, the Budget also brought welcome news in the form of a cut to the Corporation Tax rate. ‘By 2015, this country will have a Corporation Tax rate of just 20%, by far the lowest of any major economy in the world. This will inevitably encourage more entrepreneurs to base themselves in London, further boosting the economy,’ he said.

Whilst the London property market relies on international investors and buyers, it will continue to be at risk from the political policy makers, according to Roarie Scarisbrick, partner at independent buying agents Property Vision. ‘However it is reassuring to see that in this year’s Budget, the emphasis is on making the UK an attractive place to do business and enticing wealth creators to live and work here,’ he added.

Sue Foxley, head of Research at Cluttons, is among those concerned about the prices rising too much. ‘An ongoing commitment to the Funding for Lending scheme and the announcement of the Help to Buy scheme are welcomed, but in London and the highly restricted residential areas in south east, an increase in funding in the absence of new supply can only result in price rises well ahead of earnings,’ she said.

John East, land and new homes director at Kinleigh Folkard & Hayward, believes it will be important that the new scheme is available to all buyers, not just first time buyers, and that the mortgage guarantee will be available to both new build and existing homes.
 
‘We’ve recently seen a great deal more confidence in the market with the result being that house builders are building more homes. The problem therefore has largely been the deposits that are required and which in London can often take a few years to save,’ he said.

‘The first buy scheme only applied to first time buyers and so in London meant that purchasers were often limited to flats due to the pricing of properties in the Capital. This limit of £600,000 is therefore great news as it will stimulate the house market and enable second steppers and those who are not first time buyers to benefit from this purchase scheme too. We therefore expect to see greater levels of activity in the market, especially London, as a result,’ he added.

Other experts point out that new provisions relating to Inheritance tax, which will apply to the full value of UK homes even if they are mortgaged, contained in the 2013 Budget could actually affect the higher end of the London market and elsewhere in the country.

‘Unless it is drafted carefully, this will further discourage wealthy, international individuals from spending and investing in the UK through increasing their exposure to UK inheritance tax,’ said Damian Bloom, private client partner at City law firm Berwin Leighton Paisner.

‘It will also have the unintended consequence of hitting entrepreneurs who have tried to grow their business by borrowing against their homes, as it will potentially restrict inheritance tax relief on those businesses. This will affect GPs, dentists and farmers across the country,’ he explained.

‘It will remove business property relief through the back door and will prevent the transfer of  whole businesses and farms to the next generation. Chancellor George Osborne says he wants to create an aspirational nation, but this measure says otherwise,’ he added.