As Britain launches biggest building programme in over 30 years.  How will these changes impact on UK Buy to Let Investors?

 

The UK government has launched the biggest house building programme in over 30 years.  The new Spending Review measures will create 400,000 affordable new homes by 2010.  But how affordable are they?  And is this more bad news for buy-to-let?

 

The UK government has launched the biggest house building programme in over 30 years.  The new measures, unveiled by George Osborne as part of the Autumn Spending Review, will create 400,000 affordable new homes by 2010. But what are they?  And what impact will they have upon the UK housing market?

 

We round up the key announcements made yesterday (Wednesday 25th November 2015) and the industry’s reaction.

 

London Help to Buy

A new Help to Buy equity loan scheme for London will give first-time buyers 40 per cent of their home’s value from early 2016 – doubled from 20 per cent, as per the current scheme for the rest of the country, to account for London’s higher property prices.  Buyers will still be required to pay a minimum of 5 per cent as a deposit.

Properties up to the value of £600,000 will be eligible.

 

Help to Buy: Shared Ownership

135,000 of the 400,000 will be made up by a brand new Help to Buy: Shared Ownership scheme.  The government will remove “many of the restrictions on shared ownership” – who can buy them, who can build them and who they can be sold on to.

Anyone with a household income of less than £80,000 outside London, and £90,000 inside London, will be able to buy a home through shared ownership. Only military personnel will be given priority over other groups.

People can buy a share between 25 per cent and 75 per cent of a home.  The rent on the rest of the property won’t be more than 3 per cent of the amount left.

For example, on a house worth £227,000 where the buyer has bought a 40 per cent share, the rent won’t be more than 3 per cent of the remaining 60 per cent – in this case, £4,000 a year, or £340 a month.

 

Starter Homes

Osborne confirmed that the government’s Starter Home scheme will still go ahead, with 200,000 new properties sold at 20 per cent below their market value to young first-time buyers.

 

Right to Buy extension

The previously announced extension of the Right to Buy scheme to housing association tenants will also begin with a pilot: from midnight (25th November), tenants of five housing associations will be able to start the process of buying their own home.

 

Speeding up construction

The government will continue to reform the planning system so that it can deliver more new homes more quickly. Public land suitable for 160,000 homes will be released, while unused commercial land will be re-designated for use as Starter Home developments.

Loans for small builders will also be extended to regenerate run-down estates and invest over £300 million in delivering the first new garden city at Ebbsfleet.

 

Stamp Duty boost for landlords

From 1 April 2016, people purchasing additional properties such as buy to let properties and second homes will pay an extra 3 per cent in stamp duty.  Money raised from this tax will be used to help those struggling to buy their first home.

“Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy,” said Osborne. “This extra stamp duty raises almost a billion pounds by 2021 – and we’ll reinvest some of that money in local communities in London and places like Cornwall which are being priced out of home ownership.”

 

Bad news for buy-to-let?

The government’s move to tax buy-to-let investors arrives hot on the heels of a report highlighting Europe’s “silent emergency” for housing, with critics pinning part of the blame of the current housing shortage upon the treatment of real estate as an asset for investment rather than a form of accommodation.

However, the booming private rented sector has provided a vital function in giving those unable to afford a home a more affordable housing option. With the government recently cutting tax relief for buy-to-let investors, landlords and property investment firms have not welcomed what is perceived as another blow to the sector.

David Cox, Managing Director of the Association of Residential Letting Agents, labels it “catastrophic news for the private rental sector, especially following the recent changes to mortgage interest tax relief and the annual wear and tear allowance”.

“Increasing tax for landlords will increase rents and reduce property standards for tenants,” he adds. “To make owning a Buy To Let property financially viable, landlords will need to pass on the increased stamp-duty costs to tenants, who will in turn see less spent on maintaining their property and of course see increased rents.  The changes will also deter new landlords from entering the market, pushing the gap between dwindling supply of available property and growing demand even further apart, which will also – in turn – push up rental costs.”

Today’s announcement is seen as another nail in the coffin of Buy-to-Let investing.  Wednesday’s announcement combined with other changes to Buy-to-Let mortgages from next year means there is likely to be a dramatic fall in the number of people investing in property this way.

 

Good news for builders

Regardless of these concerns, the government’s pledge to accelerate building activity has been welcomed by construction firms.  Shares in Britain’s biggest builders – Persimmon, Taylor Wimpey and Barratt Developments – jumped by 4 to 6 per cent this morning, a combined boost of over £700 million to their stock market value.

 

“Affordable” homes: Ownership crisis or housing crisis?

“I am doubling the housing budget,” said Osborne. “Yes, doubling it to over £2 billion per year.  We will deliver, with government help, 400,000 affordable new homes by the end of the decade.  That’s the biggest house building programme by any government since the 1970s.  And affordable means not just affordable to rent, but affordable to buy.”

The definition of “affordable”, though, has been called into question, as house prices continue to climb, thanks to the ongoing lack of housing.  Indeed, while London Help to Buy will give buyers a leg up onto the property ladder, the capital’s average house price recently rose to £499,997, according to the Land Registry, meaning that first-time buyers would still require a minimum deposit of £24,999.

The difference is between a perceived home-ownership crisis and an actual housing crisis, says Matt Hutchinson, director of flatshare site SpareRoom.co.uk, with the government continuing to focus on helping more people own homes, via Right to Buy or Help to Buy, while supply fails to keep up with demand.

“The Chancellor thinks we’re in the middle of a home ownership crisis. We’re not, we’re in the middle of a housing crisis,” he comments. “The Tories’ one-track focus on home ownership as the only solution for the UK’s housing crisis never wavers.”

Even with the new schemes, affordability will remain the biggest hurdle going forwards.  Housing charity Shelter notes that “at least half of households under 40 in England wouldn’t be able to afford to buy a shared ownership property in 2020”.

“Surprising as it may seems, low-rent homes are actually a really good route into home ownership for those households,” adds the organisation. “The lower rents help people save, and if it’s a council home they will get access to Right to Buy.”

Mark Hayward, Managing Director of the National Association of Estate Agents, agrees that more homes should take priority over more owners: “We must applaud any – and all – initiatives to increase housing supply, however, what we need is next day delivery, not the promise of a cheque in the post.

“The announcement continues to talk about the ‘why’ and the ‘when’ but we simply don’t have the ‘how’ and the ‘where’.”

“Those able to access this so called ‘affordable housing’ still require some pretty hefty incomes to qualify and with wage inflation still being significantly outpaced by house price inflation, the plight of the first-time buyer will only be compounded over the next five years,” he continues.

Matt Hutchinson, director of flatshare site SpareRoom.co.uk, adds: “Turning generation rent into generation buy – enabling home ownership – is just one solution to multiple problems renters face.  Helping a select few buy homes doesn’t fix the wider affordability crisis.  What about making sure generation rent can afford to pay their rent, for one? This would benefit renters who don’t want to buy as well as boosting the savings of those who do.”

 

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