Housing: Help-less to Buy?

It’s been a bizarre year to buy a house.

Viewings being halted or strictly controlled, furlough forcing many to take themselves out of the search, stamp duty changes here, banks upping down-payment levels there. Phew.

And now a short hiatus while Help to Buy 2.0 gets ready to go in 2021.  

It’s this last point that has stalled reservation rates connected to the scheme slightly for UK house builder Bellway, which gave an interim update this morning.

And it’s one the whole sector will hope springs back to its usual success next year.

Double or nothing

Help to Buy has been a major tailwind for the nation’s home builders with first-time buyers only having to part with a 5% deposit and the government taking on 20% (40% in London) of the cost of a newly-built home.

But, away from the scheme, the current dearth of higher loan-to-value mortgages means many buyers ready to go this year with the normal initial 10% payment have now been tasked with bumping up deposits to 15-20%.

5% deposits have all but disappeared.

Buyer beware

While vaccine news has perked up markets, the economic cost of the virus has still to be counted.

The threats of reduced incomes and high unemployment haven’t dissipated and the prospect of a rise in loan defaults is prompting lenders to take a cautious approach, wanting more upfront from buyers.

So interest rates might be at rock bottom and the Chancellor’s stamp duty holiday might be an added bonus, but higher deposits means it’s back to saving mode for many first-time buyers.

Where they can, buyers might just spend Christmas doing a bit of mental maths, weighing up the effects of the stamp duty measures with the recent increase in house prices.

This week’s figures from the Halifax put the average UK property at £253,000, having risen by more than £15,000 since June. That 6.5% rise is the strongest five-monthly gain since 2004.

And despite the latest Nationwide House Price Index corroborating the recent robust market activity, chief economist Robert Gardner urged caution.

He said, “Housing market activity is likely to slow in the coming quarters, perhaps sharply, if the labour market weakens as most analysts expect, especially once the stamp duty holiday expires at the end of March.”

If the risks do materialise as banks fear, government policy could have a role to play, possibly by extending the stamp duty holiday until employment is stable enough to facilitate a return to house purchases.

Bellway order book looking strong

Bellway’s figures released this morning reflect the recent uptick in demand for new houses.

An order book of over 6,000 homes with a value heading towards £1.8bn will please shareholders who have seen a nervous recovery in the firm’s shares since March.

Pent-up demand has already come through for the company’s homes after lockdowns earlier this year.

And while reservation rates have dipped by 30% year on year due to ‘Lockdown: The Second Coming’ and the gap in Help to Buy schemes, the firm says sentiment remains strong.

There might be another round of pent-up demand coming in the new year, for those not held back by risk averse bank lending measures.

Importantly, the company is putting in a 50p dividend. While that is 50% down on last year’s figure, it’ll be good news for shareholders half-expecting the dearth of dividends to continue.

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