Budget 2013 - How it will Affect The Housing Market
In the Chancellor’s speech yesterday there were two big announcements that will directly affect the housing market. One is “Help to Buy” that is focused on new build property, which is an extension of the unsuccessful NewBuy scheme. The other, which is not due for some time yet, has the potential to be much more exciting.
Help to Buy: Mortgage Guarantee
This is a scheme where the government will guarantee approximately £130bn of high loan-to-value mortgages. These 100% to 85% mortgages are not widely available in the market and have very strict criteria and higher interest rates.
The idea is that by offering guarantees on these loans, lenders will be able to make more money available to fund high LTV mortgages and therefore reduce the cost of these loans. Critically, this scheme is available for the whole market, not just new build.
It presents a real opportunity to improve substantially the amount of demand for first- or second-time buyers wanting to move up the ladder but who have too small a deposit or not enough equity. Because it influences second-time buyers, it has the potential to increase not only the demand but also the supply of houses available. This is absolutely key to getting a wider housing market recovery. This part of the scheme is not due to come into force until January 2014.
So far in 2013, Preston Baker has seen a 24% increase in sales compared to the same period in 2012. This is predominantly a supply-led recovery, with an overall shortage of the right property in the right areas coming to market.
With the Funding for Lending Scheme having influenced the mortgage rates in a downwards direction since summer 2012, this has pushed demand up – but only for those with larger deposits. The possible consequence of this scheme is the unlocking of trapped supply for those who don’t have enough equity to make the next move up the ladder.
If you would like more information on the scheme, why not have a look at this infographic which gives some helpful information from the Treasury