Stamp Duty, Green houses and 5% deposits: The Government’s Commitment to Housebuilding Continues
It is often mused that the more things change, the more they stay the same. If there was one word to describe the UK political landscape of the last decade, “uncertainty” would probably be a good fit. An unexpected coalition Government, recession, austerity, three referenda, four different Governments and three different Prime Ministers.
In all that change and uncertainty there have been a number of constants and certainties, one of those is the Government’s commitment to home ownership. This is not a surprise, the conservative party have dominated the Government for the last decade and a fundamental part of the modern conservative political DNA is individual homeownership.
In this article we will look at the current raft of measures the Government has in place to support home ownership and the housebuilding industry.
Stamp Duty Holiday
From 8 July 2020 to 30 June 2021 residential property transactions up to £500,000 are subject to SDLT at the 0% rate. This has had a positive impact on transactions; in August 2020 there was a 15.6% rise in the number of residential transactions and in September 2020 this increased again by 21.3%.
The intention of the tax holiday was to help stimulate the economy and get the sector moving again after the various lockdowns have been lifted. Evidence showed that once the first lockdown was over house prices in the UK rose 2.7% between May and June 2020.
The Home Builders Federation estimates that there are 240,000 people directly employed by house builders and that a further 300,000-500,000 people are indirectly employed by the industry. There is a clear benefit to the wider economy in supporting jobs as well as helping purchasers save money.
Perhaps as an unsurprising but positive consequence, a third of homebuyers who have benefited from the tax holiday plan to spend the money they have saved on making home improvements, further contributing to the economy.
Home Improvement Vouchers
Speaking of home improvements one of the newer, but short-lived, schemes which was only available in England, is the “Green Homes Grant” which provides vouchers for “green” improvements. These vouchers were available through certain approved contractors for specific environmentally friendly improvements such as cavity wall insulation, double glazing, low carbon heating systems etc.
For most individuals the vouchers would have been worth about two thirds of the cost of the energy efficient improvement up to a maximum of £5,000 although in some cases the entire cost of an improvement up to £10,000 may have been available. Whilst the scheme is no longer running, it is a further example of the Government coming up with new and innovative schemes aimed at home owners and this key part of the economy.
Help to Buy
The raft of Government support to first time buyers continues to be extended and revamped. Currently there are two schemes available:
- Shared Ownership, this offers homebuyers the opportunity to buy between 25% and 75% of the value of the home and pay a rent on the remaining share. There is then the option during the term to “staircase” up and buy a greater share of the property.
- Equity Loan, the Government offers loans of between 5-20% (up to 40% in London) of the full price of a new build home (subject to maximum regional price caps) to help top up the deposit available to obtain a regular mortgage. The repayments only start after five years and are interest only.
5% Deposit Scheme
A new scheme has also been introduced to try and revive low deposit mortgages, which the Government says have “disappeared” during the pandemic. The Government will guarantee the mortgage of homebuyers who only have a 5% deposit. This is not limited to first time buyers or new builds (some lenders may expressly exclude new build homes) but the limit on the purchase price of the property is £600,000. Lloyds, Santander and Barclays, amongst others, are proposing to launch mortgages under the scheme.
Government support still attracts some criticism
The various schemes have widely been praised as helping first time buyers get on the ladder and in the scheme’s infancy help boost the housebuilding sector following the financial crash. That the Government continues to extend and come up with new schemes shows the commitment of Government to this sector and that they consider the schemes successful.
The scheme isn’t without its critics and the charity Shelter says that the scheme has increased house prices by 1.4% making it harder for first time buyers.
Impact of COVID-19 on housing – an exodus from London?
The impact of Coronavirus has accelerated existing trends; increase in home working, increase in online shopping and home delivery, decreases in retail activity. Some of these changes are down to the ongoing lockdowns and we will see the full impact when the restrictions are over. John Lewis has recently said that there has been ten years of change in retail activity in twelve months. Time will tell.
The impact on housing is equally interesting. People now generally want more open outdoor space (32% of people want to live in a more rural area) and with the trend of increased homeworking, the demand for houses with separate office, or at the very least a spare room which can be used as such, has gone up. Such luxuries can command a high premium in London, out of the reach of many.
Between 2015 and 2019 1.6m people moved out of London and 1.1m moved in, a net loss of half a million. The average house price for London in March 2020 was £485,794, for England as a whole it was £248,271. Clearly money goes a lot further outside of London and this looks to be playing out in the current trend.
The new 5% scheme may help accelerate this trend, it will be open to creditworthy homebuyers and the limit of £600,000 will apply outside of London giving buyers support with much greater purchasing power. This should be good news to house builders as development land and opportunities are more readily available outside of London. With greater investment in infrastructure such as Crossrail and HS2, this could again accelerate investment outside of London.
Housing is clearly central to Government policy and with the introduction of new support and tax relief for homebuyers it can play a starring role in the economic recovery from the COVID-19 pandemic. What will be interesting is to see how various trends develop over time and how this impacts on our big cities. Developers will be considering their long-term strategies very carefully.