By Daniel Hunter
One in five first time buyers (20%) say that Government schemes like Help to Buy will help them get onto the property ladder. However, as many first time buyers (23%) say that the best thing Government could do to assist them is to stop taxing their deposit savings, the Building Societies Association’s (BSA’s) quarterly Property Tracker report has revealed.
Results from the survey which questions 2,000 consumers across the UK every three months indicates that recognition of the Government schemes is reasonably high but that not all those looking to buy a home thought that it was the most helpful approach.
There are clear indications however, that one important factor in the housing market – consumer confidence – is on the up. For the first time in the last three years, the majority of consumers in June 2013 expect house prices to rise in the next year. Just nine per cent expect prices to fall over the next twelve months. Historically, future prices expectations have been an indicator of consumer confidence, and in a market where most purchases are discretionary, is a guide to future activity.
Clearly, rising prices is a double-edged sword which challenges first time buyers. As in previous Property Tracker surveys, raising a deposit remains the single largest barrier to home ownership, 54 per cent of those wishing to buy saying it is their main deterrent. Through schemes such as Help to Buy: mortgage guarantee, government aims to help potential homebuyers particularly those with smaller deposits.
The scheme, which has yet to be defined, is scheduled for launch in January — but even before its launch there are already 60 mortgage products across the whole market – 40 from mutual lenders – available to those with a deposit of five per cent.
One serious risk factor of the Government’s strategy – already emphasised by the Governor of the Bank of England and the Office for Budget Responsibility — is the potential for the inadvertent creation of a future house price bubble. For the Help to Buy: mortgage guarantee scheme in particular, it is critical that the Government designs and manages this scheme effectively, with a clear exit strategy right from the start if the clear market risk from state and ultimately tax-payer intervention is to be avoided.
“We are pleased that the Government shares our commitment to get the housing market moving, but it is vital that there is a clearly defined exit strategy right from the start for the Help to Buy: mortgage guarantee initiative. It cannot become a permanent feature of the market beyond the time when the country is in economic recovery mode,” Paul Broadhead, Head of Mortgage Policy at the BSA, commented.
“Care is needed to prevent the actions taken today inadvertently causing a distorted housing market in three years time – a market where state intervention has artificially hiked prices. There are encouraging noises from builders on sign-up for Help to Buy: equity loan. If this and other schemes do encourage builders to build – increasing supply and improving consumer confidence, it will be a success. If the Government were to add some form of savings tax moratorium that would assist consumers by shortening the time they need to raise a deposit.”
“It is encouraging that one in five people with a smaller deposit say they can use Government schemes to their advantage. But January 2014** is still a way off and the fact is that, while the number of products may fluctuate, mortgages which demand a 5-10 per cent deposit are already available to the 44 per cent of prospective first time buyers who say they have a deposit of this size. For those keen to buy, now may well be the time to start.”
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