The government has announced a new equity loan scheme, Your First Home, to help first-time buyers onto the housing ladder, with full details due at next month’s Budget.
Under the scheme, prospective first-time buyers purchasing a new-build property from a developer signed up to the initiative could access 2.5% deposits, backed by 20% government-backed equity loans.
An initial interest-free period on the loans means users could save hundreds of pounds a month compared with a 95% mortgage, according to the Ministry of Housing, Communities and Local Government (MHCLG).
The scheme will set a household income cap alongside local property price caps to target support at those most in need, with the detail to be confirmed at the Budget. The government said the initiative is intended to tackle the deposit barrier facing first-time buyers, building on its existing housing ladder support.
MHCLG said the scheme would also act as a stimulus for the new-build market, which is “currently facing challenging headwinds driven by international economic pressures and rising construction costs.” Developers signing up to the scheme will be expected to make a financial contribution towards its costs.
The National House Building Council (NHBC) welcomed the announcement. Paul Turner, chief executive at NHBC, said: “News from Andy Burnham and Angela Rayner of a new equity loan scheme to help first-time buyers purchase new build homes is a welcome boost for the industry.
“The security of owning a high-quality, safe and sustainable home has for too long been out of reach for many hard-working people. It is reassuring that government has recognised this with material support that will help get people on the first rung of the housing ladder.”
However, Turner cautioned that supply also needed to be addressed “through accelerated planning reform and the easing of unnecessary regulatory burdens,” adding that it was “vital to keep focus on maintaining quality in the construction of new homes”.
Emma Toms, chief executive of the New Homes Quality Board, welcomed the support but stressed the importance of build quality. She said the government had already committed to a statutory new build quality code, and should “now introduce it urgently, ensuring taxpayer-backed homes are covered by consistent, universal requirements that safeguard buyers and shore up market confidence”.
Paul Rickard, chief executive at housebuilder Pocket, said the scheme would be “very welcome news” for prospective first-time buyers, noting that the lower 2.5% deposit could make it more accessible than Help to Buy. He added that it offered “welcome relief” for a housebuilding industry that has been “reeling from the rising costs of construction, interest rates, and new regulation”.
Rickard said the scheme was “rightly targeted to those that need it most,” but called for the local property price links to work effectively in London, where he said home ownership challenges and demand were greatest. He said he hoped the scheme would prove proportionate in supporting both SMEs and innovative housing providers such as Pocket, adding that the company would continue working with the government and the Greater London Authority to address supply-side costs and risks facing developers bringing forward planning applications.
Sting in the tail
Emeritus Professor Joe Nellis, head of economic research at accountancy and advisory firm, MHA said the scheme could provide a “much-needed shot in the arm for the housing market”.
“This is timely, as the housing market has stalled in recent months while households have been coping with the cost-of-living crisis. The new scheme should help unlock some of the pent-up demand from aspiring homeowners who are able to afford a mortgage but struggle to raise an adequate deposit,” he added.
The benefits could also extend beyond first time buyers, he suggested, with a boost in demand for newbuild housing potentially leading to more transactions and activity across the wider property market.
But, there’s a “sting in the tail,” he added: “Britain does not simply have an affordability problem; it has a chronic housing supply problem. Boosting buyers’ purchasing power without delivering substantially more homes risks translating government support into higher prices.”
Dr David Crosthwaite, chief economist at BCIS, said: “New support for first-time buyers is the first positive news housebuilders have received in a long time. If executed well, it could boost buyers’ purchasing power and housebuilder sales so it’s unsurprising to see shares rise.
“However, concerns that this is a demand-side solution to a supply-side problem are valid. Recent government analysis estimates that the previous Help to Buy scheme increased new housing supply by 15%, although much of that impact came during the scheme’s early stages. It also contributed to higher house prices.
“In other words, such schemes can stimulate demand and supply in the short term, but their effectiveness is likely to diminish if prices rise and the benefit to buyers is eroded.”
Image credit: Africa Studios/Shutterstock
Read next: JV North urges HBF to adopt satisfaction survey
Are you a social housing professional? Sign up for a FREE MEMBERSHIP to upload news stories, post job vacancies, and connect with colleagues on our secure social feed.
