Help to Buy delays could curb developer profit

Help to Buy delays could curb developer profit

Delays caused by using the Help to Buy scheme to purchase a new-build home could hinder developers’ profits.

Recently, the Help to Buy Isa was slammed by MP for Tottenham David Lammy who alleged that while the government’s affordable homeownership schemes’ website stated that the Isa would help with a deposit, the scheme’s 25% bonus cannot be used for a deposit on a property at the point of exchange of contracts.

Now Development Finance Today has been told that delays caused by using Help to Buy are beginning to impact on developers’ revenue.

“Our experience of Help to Buy is that it works,” said Ashley Ilsen, head of lending at Regentsmead.

”However, in the cases that we have seen Help to Buy being used, [they] have moved extremely slowly as it takes time to put the structure in place, which could hinder the developer’s profit.

“Help to Buy was a good concept, however, as with all good ideas it needs further development and improvements if we are going to start making a dent in the demand for housing figures.”

Earlier this year, the Office for National Statistics House Price Index reported that prices paid for new dwellings increased by 9.3% on average, with the average cost in February being £281,000.

Development Finance Today therefore asked whether schemes such as Help to Buy and shared equity had caused developers and housebuilders to sell new-build homes for more than they were worth?

Steven Miller, senior consultant at MCIFA, felt that if schemes such as Help to Buy encouraged more purchases then it would end up pushing prices up.

“While this would not have been the intention of the schemes, they are helpful in encouraging more people onto the housing ladder.

“Also, as they are not exclusively available on new builds then their effect on pricing is unlikely to be severe, particularly in the shared equity sector which is aimed at the affordable housing market.

Adam Morton, policy leader at the National Housing Federation, added: “The government has introduced welcome measures to help more people to get on the housing ladder.

“However, without more decisive action to boost supply and build more homes, across all tenures, this will not be enough to bring prices under control – and this can only be done by working with housing associations and others can we build the tens of thousands of extra homes a year the country needs.”

James Bloom, managing director of development finance at Masthaven, added: “The lack of new homes in certain areas may provide an opportunity for home development which will contribute to a slight inflation.

“These schemes are having an impact on this but only to a small extent.”

Steven felt that there was premium for new build homes, the same you get when buying a new car.

“It feels much nicer to move into a property that has previously been unoccupied, it can be furnished from scratch to your specifications, and there are no issues with an onward to chain to jeopardise the transaction.

“They are also generally more heating efficient and environmentally friendly etc. than older properties.”

Ashley agreed adding that buyers bought new build properties in the knowledge they were less likely to have defects.

“In practice, there are varying degrees [as] to what level of a premium a developer may look to build into the market value of their products, and we at Regentsmead have seen quite a large variance in how this plays out.

“While it’s obviously important developers are making a sufficient profit, there needs to be a balance between their businesses doing well and new homes being affordable, particularly for first-time buyers.”

Steven concluded by adding: “As with any property purchase it is only worth what someone is willing to pay.

“If the purchaser is prepared to pay for a slightly smaller property, but with far less aggravation in the process of buying and selling, and don't want to have to deal with redecoration/refurbishment then the purchaser may deem it worthwhile.”

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