The Budget contained a long list of housing measures (see Appendix). We set out further details for a number which have particular significance for home builders.
Help-to-buy has two components: a shared equity scheme to replace FirstBuy; a Government mortgage guarantee scheme.
Help-to-buy: shared equity scheme
To replace FirstBuy
Introduced from early April 2013
To run for 3 years (31 March 2016)
For any new home buyer up to a price cap of £600,000 – FirstBuy restrictions such as household income or matching household size to bedroom numbers are all gone
With the Government putting in a 10-20% equity share and no contribution from the home builder
Repayable once the home is sold (i.e. no fixed period such as the 25 years for FirstBuy)
England only – but there are also funds available for Wales and Scotland
Administered by the HCA (it has not yet been resolved how the scheme will be administered in London)
Open to all home builders to apply, with Government anxious to include smaller and medium-sized home builders
HomeBuy Agents (HBAs) will still be required to process applications (because public money is involved, the Government requires appropriate due diligence) – the HBAs will also be able to undertake the recording of sales on the HCA IMS computer system for smaller home builders
Government funding provides £3.5bn for an estimated 74,000 sales (approx 25,000 per year) – which implies an average equity share of £47,300, and an average house price of £236,500 (assuming all equity shares are 20%)
The HCA will post a pro forma on its web site in the next few days allowing home builders to register an interest. Those registered will then be kept informed by the HCA. Home builders will be able to register for the scheme at any time – i.e. there will not be fixed bidding dates, as with previous schemes. Home builders already offering FirstBuy have already been contacted by the HCA. Existing allocations for FirstBuy from 1st April 2013 will be changed over to Help to Buy, subject to entering a new contact agreement.
HBF will be working closely with the HCA to help introduce the scheme. We already have a member working group which meets the HCA monthly to review FirstBuy, Affordable Housing, etc, so this group will play a key role. At present there are unanswered questions – e.g. whether all the lenders providing loans for FirstBuy sales will support the new scheme, whether there will be a logo, the availability of HCA marketing literature, whether Px will be allowed, etc.
Help-to-buy: mortgage guarantee scheme
From January 2014
For 3 years
For new and second-hand homes, first-time buyers and moving existing home owners, up to a price cap of £600,000
But excluding buy-to-let (there is uncertainty about whether second homes will be included; re-mortgaging with a new lender will be included), for individuals only (not incorporated companies), repayment mortgages only, and the borrower must meet normal lender affordability and credit criteria
Voluntary for lenders who will pay a commercial fee to Government for each mortgage to make the scheme self financing
For mortgages at LTVs from 80-95% (i.e. deposits of 5-20%)
Government indemnifying lenders for “a portion of the net losses suffered in the event of repossession” for up to 7 years (as with NewBuy)
With a cap of £12bn on the value of guarantees, translating into £130bn of high LTV mortgages, at a working assumption of 190,000 loans per year - last year there were 933,000 housing transactions in the UK
The reaction of the press and many commentators has been depressingly negative, asserting that the scheme will just drive up house prices (many talking of a “price bubble”) and that it will lead to sub-prime lending (ignoring the very tight new FSA rules governing mortgage lending). The Budget is quite clear that Help to Buy will increase the supply of low-deposit mortgages for “credit-worthy households”. The opposition has focused on Government equivocation over lending for second homes – there is a problem defining second homes and policing them if they are excluded.
HBF will seek to work with the Government, CML and lenders to help in any way we can, given our experience with NewBuy which is clearly the basic model for the new guarantee scheme.
Build to Rent
The original £200m fund (Autumn Statement) has been multiplied 5 times to £1bn following the massive response to the Government’s Build-to-Rent Prospectus invitation to bid in December – we understand the short list will be announced soon, valued at well above £200m but not the whole £1bn, with the possibility of a further round of bids in the future.
Affordable Housing guarantee programme
The Autumn Statement announced an additional £225m for Affordable Housing, funding an additional 15,000 homes, over and above the existing four year Affordable Homes Programme, alongside the availability of £10bn in loan guarantees (to cover both Affordable Housing and private rented schemes). The Budget doubled the funding under the Affordable Housing guarantee programme by providing another £225m for a further 15,000 homes starting in England by 2015.
The current Spending Review runs until March 2015. The Government is preparing a Spending Review for one additional year, to March 2016. This will include setting out the formula for social rents for 10 years, up to 2025, to give social landlords and funders long-term certainty.
“The Government is committed to implementing ‘zero-carbon homes’ from 2016.” DCLG will publish a detailed plan for the energy efficiency requirements of the Building Regulations (Part L) in May. It will consult on “next steps”, including Allowable Solutions, before the summer recess (i.e. 18th July).
Commercial to residential use – The Government is going to examine whether amendments to Investment Regulated Pensions Schemes can be used to encourage the conversion of unused commercial space into residential property.
Help to Buy – A mortgage guarantee scheme to increase the availability of mortgages to consumers who can only raise the funds for small deposits.
Help to Buy (equity loan) – From April 1st 2013 Help to Buy (equity loan) will be open to all who aspire to own a new build home: -
Provide an equity loan worth up to 20% of the value of the new build home, repayable once the home is sold.
Significantly widen the eligibility criteria for shared equity to ensure as many people as possible are able to benefit. The maximum home value will be £600,000 and there will be no income cap restraint.
Ensure that the scheme is open not only to first time buyers but also to those moving up the housing ladder.
Social Rent – 2015-16 spending round the Government will set out a social rental policy that will give certainty to landlords until 2025.
Pay to Stay – Landlords will be able to charge market rents to social tenants with a combined income of more than £60,000 a year. All additional income must be reinvested in housing.
Right to Buy – From the 25th March in London the discount cap will be raised to £100,000 from £75,000.
Right to Buy – The entire process will be simplified for both LA’s and tenants.
Right to Buy – Tenants will only have to wait 3 years before they’re eligible.
Build to Rent – The Build for Rent fund will be expanded from £200 million originally announced to £1 billion.
Zero Carbon Homes – “The Government is committed to implementing 'zero carbon homes' from 2016. The Department for Communities and Local Government (DCLG) will publish a detailed plan, setting out its response to the 2012 consultation on the energy efficiency requirements in building regulations, by May 2013. The Government will then consult on next steps, including on the means of delivering allowable solutions, by Summer Recess.”
Extension to affordable homes guarantee programme – The existing affordable homes guarantee will be doubled, providing a further £225 million to support the building of 15,000 new affordable homes.
Public Land Disposals – DCLG have invited bids from eligible public land holders for the £290 million funding allocated to accelerate surplus public land disposals at Autumn Statement 2012. In addition, around 30 sites will transfer to the HCA, who will dispose of them quickly.
SDLT Rates – As announced in Dec 2012 the Government will introduce further reliefs to the 15% rate of SDLT which applies to residential properties valued at over £2 million purchased by certain non-natural persons.
REITs – The Government will legislate to allow a UK REIT to treat income from another UK REIT as income of its tax exempt property rental business. The Government is further considering the case for REITs bring included in the definition of “institutional investor”.
Judicial Review – The Ministry of Justice has consulted on shortening time limits for bringing a planning judicial review and will set out its plans in spring 2013.
Planning Use Class – The Government will consult on further flexibilities between use classes to support change of use from certain agricultural and retail uses to residential use to increase responsiveness within the planning system.
Planning Guidance – Looking to Lord Matthew Taylor’s recommendations the Government will review planning guidance, with greater focus on market signals to ensure land is allocated where it needs to go.
Land Auctions Feasibility Study – DCLG is progressing the public sector land auctions model and will work with HM Treasury to conduct a feasibility study into wider use of the model.
Business Bank – Launch a £300 million investment scheme to help diversify and expand the supply of lending to SMEs and mid-sized businesses. Provide an additional £50 million for the business angel co-investment fund. Finally publish the banks first strategy; this will set out an accelerated timetable as to how the bank will direct its £1 billion of new capital to improve existing access to finance for SMEs and develop by 2014 a lasting institution that will diversify the UK finance markets so that they serve SMEs.
Home Builders Federation
London, SE1 9PL
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