Potential end of Help To Buy could drive demand for rental property

End of Help To Buy could drive rental demand

With the UK already failing to meet targets for new housing, news of the possible end of the Help To Buy scheme could exacerbate the country’s existing problems and increase the demand for alternative housing solutions.

A journal from Property Week has reported that the Department for Communities and Local Government (DCLG) is working with a team from the London School of Economics (LSE) to review the scheme, with the end of Help To Buy or a tapering system mooted as possible outcomes.

The Help To Buy equity loan scheme has proved hugely significant as a catalyst for housing activity, particularly in helping people to climb onto the housing ladder for the first time, with over 100,000 people reportedly benefitting.

Under the scheme the Government lends up to 20 percent of the purchase price (rising to 40 percent in London) to assist first-time buyers by lowering the size of the deposit.

In 2015, the Government indicated that the Help to Buy Equity Loan had contributed 14 percent of total new build housing output.

As recently as February 2017, the Communities Secretary Sajid Javid published a white paper stating:

We have committed £8.6 billion for the scheme to 2021, ensuring it continues to support homebuyers and stimulate housing supply.

Among those immediately affected by the uncertainty surrounding Help To Buy’s future are housebuilders, who are already under pressure to build greater volumes of houses to help alleviate the current housing crisis.

Shares in many of the largest housebuilders tumbled, off the back of this news, with FTSE 100-listed builders Barratt, Taylor Wimpey and Persimmon seeing a five per cent fall in early trading on the morning of Friday 4th August. FTSE 250-listed Bellway and Crest Nicholson were others to see share prices fall.

Jorden Abbs, head of operations at Commercial Trust said:

The availability of new homes is critical to fixing the housing crisis. The withdrawal of Help To Buy could severely influence the ability of housebuilders to increase the rate at which new properties are built and available on the market. This in turn could affect housing values and rental prices in an environment where supply is already struggling to keep up with demand.

“If the door to Help to Buy were to close, inevitably other housing options would bear the weight of responsibility to accommodate the UK’s population. As such, demand upon the Private Rental Sector and UK landlords may well increase.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.