Help to Buy Equity Loan Scheme Gets Off to ‘Flying’ Start

6 June, 2013

4000 new home reservations in just two monthsIndustry confident output will increase ‘significantly’ as a result

Around 4000 people have reserved a new home using the Equity Loan part of the Government’s flagship Help to Buy scheme in just two months.

The Equity Loan scheme, launched on April 1, has already seen developers committing to increasing supply, but with the scale of demand for the scheme now becoming apparent, it is clear the industry will be able to significantly increase output. 

The Help to Buy scheme has two parts to it. The Mortgage Guarantee element is due to start next January and is aimed at stimulating the whole housing market. 

In the meantime, the Equity Loan part – under which Government helps the purchasers of new build homes secure a mortgage with at least a 5% deposit by granting an equity loan of up to 20% – has got off to a ‘flying’ start. There are now more than 400 builders across the country registered for the scheme.(More details on both schemes at foot of release.)

Interest has been huge and there are now on average around 500 people a week taking advantage of the scheme. Large deposit requirements have been the biggest barrier to people’s ability to buy, and thus builder’s ability to build.  The Equity Loan scheme – allied to the industry’s NewBuy scheme that has had over 4500 reservations - means people can get onto or up the property ladder with a 5% deposit. And because buyers only require a 75% first-charge mortgage under the Equity Loan scheme, homes are very affordable.

House building levels in England are currently around half (115k p/a) those needed to meet the formation of new households(220k p/a)1. Just 88k private for sale homes were built last year. Since 2007 output has dipped to levels not seen since the 1920s, with the resultant social and economic implications. But with effective measures now in place to support demand, and consumer interest increasing, the industry is confident supply can be increased.

Stewart Baseley, Executive Chairman at the Home Builders Federation said;

“The Equity Loan part of Help to Buy has got off to a flying start. It has been an unqualified success so far and 4000 reservations in just two months shows both the consumer demand for the scheme and developers’ commitment to it.

“The large deposits required in recent years to secure a mortgage have prevented many from buying – and as a result, builders from building. The Equity Loan scheme helps consumers overcome that deposit barrier and as a result the scheme will undoubtedly lead to an increase in house building - already we are seeing companies revise their projected build levels as a direct result of the scheme. This in turn will create jobs and deliver an economic boost.”

Mark Clare, Chief Executive of Barratt said;

“Customer interest in the Help to Buy scheme has been very strong as it addresses the issue of lack mortgage finance at higher loan to values. Interest has been particularly encouraging from customers previously locked out of the market by high deposit requirements.  Post the Budget announcement, compared with last year, we saw reservations step up 18% and visits to the Barratt website increase by around 30%.  Our production will rise to meet higher levels of demand and it's likely that our completions this year will be up 20% on 2 years ago.   We are investing in land and bringing it through planning too and we are also expanding the business by taking on 600 new apprentices and graduates to tackle the skills shortage that could constrain future growth.”

Jeff Fairburn, Group Chief Executive of Persimmon said;

“Since the introduction of the Help to Buy measures in April we’ve seen a notable increase in customer interest and visitors to our sites, resulting in a stronger level of sales reservations across England.  In response we have increased our build activity to meet this increase in demand. If this early interest is maintained, the Help to Buy Scheme will play an important role in enabling the industry to increase the volume of new homes built over the coming months and years.  And in addition to helping the housing shortage this will have wider benefits for jobs and the economy – for example Persimmon has already decided to make significant further investment in trade apprentices this year to support the anticipated increase in output”

Pete Redfern, Chief Executive of Taylor Wimpey said;

“It enables us to build more homes on the sites we have already got open, and also gives us more confidence about investing in future sites and infrastructure which creates more jobs and economic activity locally.”

Help to Buy; The scheme announced in the Budget comprises two distinct parts;

Equity Loan – this enables the buyers of new build homes in England to secure a mortgage with at least a 5% deposit. The Government grants an equity loan of up to 20%. The scheme is a successor to the FirstBuy scheme that delivered around 10,000 sales up to April this year. It is expected to deliver 74,000 sales over its three year life.  Mortgage Guarantee – Government proposes to guarantee a portion of lender losses from repossessions on 95% mortgages across the UK housing market from January 2014. The Treasury’s working assumption is that the Guarantee scheme will generate around 190,000 sales per year, equivalent to one fifth of annual UK housing transactions (932,000 in 2012) Read more

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Notes to editors

1.     The Home Builders Federation (HBF) is the representative body of the home building industry in England and Wales. The HBF’s member firms account for some 80% of all new homes built in England and Wales in any one year, and include companies of all sizes, ranging from multi-national, household names through regionally based businesses to small local companies:

2.     Housing need figures based on DCLG Household Formation Projections. Latest figures show that the number of households required is over 220,000 per year – down on the previous estimate of 232,000.   read more