What Mortgage – Help To Buy Is Pushing Up Prices
The London housing market is being badly distorted by the £600,000 upper threshold of the Help To Buy scheme which is pushing prices up for first-time buyers, new research has revealed.
A study of seven London development hotspots shows more than four times as many new-build homes were sold just below the threshold compared to just over it in the past year.
According estate agent James Pendleton, a total of 83% of new build homes sold between £575,000 and £625,000 in seven key areas achieved less than £600,000.
Through the Help To Buy equity loan scheme, the Government lends up to 20% of the purchase price and 40% in London, so buyers don’t need to raise as much of a deposit to buy a new-build home.
The estate agent is warning that the £600,000 limit is squeezing the market, creating a vacuum in properties selling between £600,000 and £625,000 – and storing up problems for the future.
The study shows 380 properties across the £575,000 to £600,000 price bracket were sold in Battersea, Putney, Tooting, Balham, Wandsworth, Clapham and Brixton in the last year. That compares with just 183 properties sold in the £600,000 to £625,000 bracket.
Of the 563 homes in total, 184 new-builds – making them eligible for Help To Buy – were sold at just under the threshold (£575,000 to £600,000) while only 38 new builds achieved between £600,000 and £625,000.
James Pendleton’s experts say the irony is that the scheme was designed to help first-time buyers but is potentially harming their interests. The London plan places minimum limits on the size of homes developers can build, and this leads to developers building relatively well-sized properties under this £600,000 price level.
On the one hand, this favours buyers over developers but it also means buyers with smaller budgets are squeezed by those with bigger budgets keen to take advantage of the Help To Buy scheme. This means buyers can easily end up paying more for smaller properties that have been ‘priced up’ to meet this increased demand, resulting in an inflated market.
A secondary effect is that sellers of homes that are not new builds and are not eligible for Help To Buy nevertheless come under pressure to reduce their prices to compete, further distorting the market.
James Pendleton said the same phenomenon was caused by the ‘slab tax’ stamp duty levels before George Osborne moved the country onto a progressive system while Chancellor.
The £600,000 threshold divides a fiercely popular price point in London, where the maximum loan from the Government is 40% instead of 20%. However the upper limit of £600,000 is the same everywhere.
Although the average London property is now £482,779, the average price of flats in some areas is already far in excess of that. In Wandsworth, including Putney, Clapham, Battersea and Balham, the average flat currently on sale is priced at £764,932 while in Lambeth, home to up-and-coming Streatham and Brixton, it is currently £1.2million.
Lucy Pendleton, co-founder director of James Pendleton estate agents, said: “Artificially high demand in this price zone just beneath £600,000 will be forcing many to pay over the odds.
“By introducing a Help to Buy threshold and axing stamp duty slab tax, the Government has simply replaced one disruptive line in the sand with another.”
“These hurdles placed at arbitrary price levels have always had a distorting effect on the market and that’s what we are seeing now, smack bang in the middle of the cost of many one and two-bed flats for young professionals, which is a crucial price point for first time buyers in these areas.
“This may cause problems when these new builds are sold on, as they will no longer be available under Help To Buy and sellers won’t benefit from the extra demand the scheme generates.”