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Help to Buy will not stimulate UK housing market as much as govt claims

It reckons that the recently announced Help to Buy scheme could facilitate up to 400,000 house purchases, some 25% less than official estimates, but it will not create unsustainable house price inflation nor significantly reduce demand for private rented accommodation.

The two part Help to Buy initiative, comprising equity loan and mortgage guarantee schemes, should have a much bigger impact on the number of property transactions and help more people to buy than previous incentive schemes such as FirstBuy and NewBuy, Savills believes, not least because it is open to all and not just first time buyers.

The firm estimates that Help to Buy will assist 400,000 home purchases over the three year period, including around 75,000 new home sales.
 
This is somewhat lower than the 550,000 projected in the March Budget when the scheme was announced, but Savills points out that on an annual basis this represents a 14% rise on 2012 transaction levels, and could increase private sector building by a third.

‘Help to Buy will do a lot more to stimulate the market and help buyers than previous incentive schemes. But we expect take up to be limited both by buyers’ affordability constraints and lenders’ take up of the initiative,’ said Susan Emmett, residential research director at Savills.

While in theory, Help to Buy allows buyers to purchase with a deposit of just 5%, Savills believes that lenders are more likely to target limited funds at borrowers with at least 10% deposits. Borrowers will also still need to meet lenders’ credit and affordability checks on the basis of a repayment mortgage terms.
 
Some commentators have argued that increased access to home ownership and lower mortgage costs will lead to unsustainable house price inflation. Emmett agrees that there could be some upward pressure, but said that ‘house price growth will be limited by underlying affordability constraints and the weakness of the underlying economic recovery’.

The firm’s central forecast for UK mainstream values is for total price growth of 11.5% over the next five years. ‘We anticipate that this could now increase to 15.3% by the end of 2017, said, adding that this is relatively modest growth by any measure, particularly when set against inflation.

The firm also believes that Help to Buy will have a minimal impact on the growing private rented sector. It estimates that only 40% of buyers taking advantage of Help to Buy will be first time buyers, suggesting that this would allow 160,000 households to take a first step on the housing ladder over three years.  This would represent an increase of 25% on current levels, but many more will remain renting.

The private rented sector is still expected to grow by an average of 210,000 households a year for each of the next three years of Help to Buy, compared with a growth of around 245,000 in 2011.

‘Help to Buy is great news for aspiring home owners and those trapped in unfavourable mortgages and should boost the housing market and house builder activity,’ Emmett said.

‘But increasing the number of privately rented homes remains key. In this respect, the extension of the government’s Build to Rent scheme, which helps developers invest in homes specifically for private rent, is of greater importance in terms of meeting the fundamental need for additional homes, regardless of tenure,’ she added.

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