Help to Buy scheme boosts new-build homes market

Building house

The government's Help to Buy scheme has led to a boom in demand from first-time buyers for new-build homes, a leading estate agent has said.

Knight Frank's latest annual new-build report indicates that demand for two-bedroom apartments in particular has increased in the last year, particularly in London and the South East, as well as in the West and East Midlands.

The findings of the report – based on a survey of 100 UK housebuilders – point to potential ‘green shoots' in the regional city-centre new-build markets, according to the estate agent.

Since the chancellor announced the homebuyer help scheme in his March Budget, the UK's big developers have reported an uptick in demand for both new-build apartments of all sizes as well as smaller, two-bedroom homes – all classic first-time buyer accommodation.

However, while three-bedroom homes remain the most in demand type of new-build home, demand for three-beds actually fell in the last year, as it did for four-bedroom, five-bedroom and larger new-build homes.

This indicates that the new-build housing market is at risk of being propped up by the government's first-time buyer lending scheme.

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Encouraging signs

Housing expert Henry Pryor warned: "If you pour enough petrol on damp wood it will eventually catch fire. Funding for Lending and Help to Buy suggest that new build prices will rise which in turn is encouraging housebuilders to start up their diggers.

"Add to these significant carrots the 'stick' wielded by Mayor Boris Johnson in his threat to builders who sit on land banks that he will come after them and it's not surprising that new build volumes will increase and with it land prices.

"[But] at some point we will run out of fuel, the fire will die down and we will be left with over-priced homes that hopefully will revert to the private rented sector."

Mark Harris, chief executive of mortgage broker SPF Private Clients, said that while Help To Buy should boost the building sector, it is unlikely that developers will be able to keep up with demand. "The growing population and trend for an increasing number of people to live on their own means we are simply not building enough houses and flats," he said.

"House prices are likely to continue to edge upwards this year but, of course, national average prices conceal significant regional differences. Much will depend on where you are buying so first-time buyers who have settled on London and the South East are likely to continue to struggle while those buying in the north of the country may find it slightly easier."

What is help to buy?

The first part of the scheme came into effect in April and offers a 20% equity loan from the government for those who only have a 5% deposit to buy a new-build home worth up to £600,000. The loan is interest-free for five years and will be repaid when the house is sold, if not before. The scheme is expected to help 74,000 buyers over three years.

But a further 500,000 buyers could be helped along by the second part of the scheme, which provides a mortgage guarantee to buyers with only a 5% deposit on any home worth up to £600,000 – newly built or older. It will come into effect from 1 January 2014. The scheme can't be used in the purchase of second homes or a buy-to-let property.