This month sees the introduction of various welfare and tax changes and we’ve already had the announcement in March of further government initiatives to get the housing market moving, but what will this all mean for the West Hampstead market?
The background to these initiatives has been covered in previous articles, but in a nutshell banks are reluctant to lend to buyers as they are striving to improve their balance sheets and are reluctant to over expose themselves to the housing market with risky high loan-to-value ratios. This means that first time buyers are having to find at least 20% deposits and some existing owners do not have enough equity in their homes to meet the new lending criteria and therefore can’t move up the ladder, even though they can afford the repayments due to the low interest rates.
This situation has led to a dramatic slowdown in the number of transactions. Recent government figures show that the number of annual house sales has fallen by 50% since 2007 and that, on average, a house sells once every 25 years up from once every 15 years as recently as 2007. The implications of this slowdown on the economy and on all the related industry and services are enormous and clearly something has to be done to get things moving.
Last month we looked at the relaxation of planning laws as a way to stimulate building work. Rather than invest in infrastructure regeneration, this government has focused on other methods both of which should boost the West Hampstead property market.
First, from Jan 2014, the ‘Help to buy’ mortgage guarantee will enable buyers of new and existing property to borrow with only a 5% deposit. As long as the buyer is creditworthy and judged able to make the payment, the lender has the option of purchasing a government guarantee that will compensate them for a portion of its losses in the event of foreclosure. This is available for purchases up to £600,000 with a maximum guarantee of £120,000 (15%).
This is very good news for the NW6 market; a significant part of the property for sale in our area is valued between £350,000 and £600,000, so given the attraction of owning versus renting, this access to mortgages with a 5% deposit should be hugely beneficial. It will also make it easier for owners of first-time buyer properties to take the next step on the rung to owning a 2- to 3- bed property and improve supply all round.
The second part of the scheme is for new build properties only. This provides a loan directly from the government of up to 15% of the property value (capped at £500,000). There will be no charge for this loan in the first five years, then in the sixth year a 1.75% annual charge is levied. This will be adjusted in line with the RPI every year (~+1%). Again, for the lower end of the West Hampstead market this can only be good news. Most new build developments in the area have starting prices of around £400,000.
The criticism levelled at these schemes is that they will create another housing bubble. Artificially creating demand could lead to unsustainable over-priced housing and put us exactly where we were when the bubble burst in 2007. The government has said that these schemes will be available for only three years, so the impact should be limited in the long run but give the market a much needed kick start by providing access to home ownership that has been denied to many Londoners in the short run. Given all the failed attempts to get banks to lend again at least something different is being done to help.
At the upper end of the market, the scrapping of the 50p tax rate for high earners came into effect on April 1st, and this too should hopefully stimulate demand among those with higher levels of disposable income.
As usual, please let me know your thoughts. Has one of these schemes meant that you can now make the move you were hoping for? What else could be done to stimulate transactions?