Opinion piece: Don’t blame Brexit – it’s Help to Buy that has taken our first-time buyers

If you have had your head buried in the sand of late you may not know that the London housing market is very stagnant on the whole.

I write about London because that’s the market I know, but my thoughts may well resonate in other markets.

According to Halifax, house prices are falling at the fastest rate in nine years.

In the past I have taken such reports with a pinch of salt. They tend to focus on the worst hit locations around the UK, dramatise and apply the shock headline to everywhere.

London itself has always had its own market and on the whole it has been a resilient one since I started in this game over 15 years ago.

I have seen the cycles and I have been fortunate enough to experience a very buoyant, fast-paced east London market. However, this time is different.

My experience as a sales director meant I got to experience a number of different locations, overseeing six offices in the City fringes.

Better yet, I recently tasted the online/hybrid world which, for many of its faults (and that is a whole other story altogether) allowed me to oversee the whole of east London and west Essex just as the market turned.

What interested me was the fact that the suburbs were out-performing the more central locations, a complete turnaround from just a few years ago. Back in 2011, Hackney prices were nearly doubling in the space of a year or two whilst the burbs … well, burbled along.

Two years ago it all changed, and yes, Brexit had a lot to do with that. The first hit will always be the more central locations. The Bloomsbury and Clerkenwell offices I was overseeing at the time were hit hardest. Those markets are dominated by buyers that simply have no need to rush into a sale.

It’s fuelled by a want and by investment rather than a need. The same goes for the sellers. They don’t need to sell and won’t drop prices to do so. As you go further out, however, you then factor the need to move, such as schools and growing families.

Flash forward two years and this trend has continued and magnified. Only now the number of house sales has dropped significantly, even in the suburbs.

Darn Brexit are the cries as I visit prospective sellers. Only I have never heard of a couple looking to start a family not wanting to upsize because of Brexit.

The fact is this. There are a number of changes introduced by the Government, all of which have stifled the London market.

Prime central and City fringes have definitely felt the impact of the Stamp Duty changes for investors and the fact they can no longer offset their mortgage interest fully when paying capital gains tax. Brexit has meant a loss of confidence in the same market and nothing is worse than an uncertain one.

But let’s focus on the suburbs itself. Yes, all of that central London negativity and lack of investors will impact the suburbs slightly, but there is one major factor I think most people have overlooked: Help to Buy.

Help to Buy

If you were to Google “Help to Buy pros and cons” you will get a whole list of why you should/shouldn’t consider it (again I could write for days on that one).

But you will be hard pushed to find what I am about to tell you. This is my theory on why the London market as a whole is so much tougher now.

Most agents will tell you that the cheaper stock is selling while the big houses are sticking. That is complete rubbish in my opinion.

In fact is that whilst working in the suburbs I had no problem finding buyers for houses from £750,000 to even £1.75m. A house I had in Snaresbrook at the latter price had more viewings (and offers) on it than some of my £350k flats. One of those offers came from a family selling their house in Wanstead through me at £950k.

That property had so much interest I had to beat them away. The problem came as we went further down the chain. Selling a one-bedroom two-year-old apartment at £350k close to Victoria Park in east London should be bread and butter stuff, especially since it had little to no growth since purchased off-plan, and yet I struggled to get a viewing, let alone offer. This was a common theme. So how can this be?

What props up any market?

Answer: first-time buyers. So where are all these people?

Well, ask yourself this. Why would you buy a two-year-old apartment, generous sized ex-local authority flat or period conversion (once so popular) with a slightly older kitchen and tired bathroom when you can put 5% down on a brand new apartment and get a 20% interest-free top-up loan from the Government?

It’s not that these new-builds are people’s first choice, far from it, but with that kind of incentive when deposits are so hard to come by, it’s seen as a no-brainer.

So the Government has succeeded in its vision to help first-time buyers get on the ladder and at the same time encourage more housing development. Job done, right?

Well. yes and no.

Historically, government intervention in the housing market seems to fix one problem but create another. Or maybe this is intentional.

After all, house prices are dropping, making everything more affordable. Maybe this time they have it spot on. It seems no matter how much a resale property gets reduced, the lack of activity doesn’t change. When there are no buyers at the bottom of the chain, there are no buyers.

Most agents are just scratching their heads – unless you are in the New Homes game.

If you are lucky enough to be selling a scheme with Help to Buy you will know a very different story. Just recently a scheme in Hackney Wick with around 44 new apartments sold within a week. That’s where all those darn people are!

Put aside the negative impact on the rest of the market for a second, we’ve had a good run guys, let the youth of today have their moment.

However, my fear is this. What happens when these new-builds are no longer new and the subsequent buyers can’t take advantage of Help to Buy?

In two years’ time, what happens when you want to sell your flat and pay off that government loan but you now have no buyers either?

Couple that with the fact you have probably over-paid for your spanking new apartment in the first place.

You see, developers have cottoned on to the fact that these Help to Buy flats are selling like hot cakes and just inflating the prices.

What is going to happen if after Brexit this uncertainty continues, house prices continue to tumble and you are sitting on a government loan that you will, at some point (five years down the line) need to pay interest on?

Just ask the people that took advantage of the scheme five years ago.

This could all end with a bang, or more pertinently with this side bubble the Government has created, a pop!

* Nick Karamanlis is a branch partner at Butler & Stag

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18 Comments

  1. Will

    Well reasoned observations. The government interference will always have unwanted impacts.

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  2. Shaun77

    I made the following comment the other day on an article bemoaning the drop in homemover transactions:
    Has nobody worked out that the Help to Buy scheme essentially syphons first time buyers away from the traditional market and into new build schemes. As such, they fail to ignite an upward chain which then impacts on your home movers market.
    Given the importance of the FTB to quite literally trigger a chain reaction, removing them from the market like this is crazy and no doubt will impact severely on stamp duty receipts and the rest of the moving related tax take.

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    1. surrey1

      I’ve got a raft of buyers registered keen to upsize, most of whom are selling flats or cottages. Or rather not selling them. Viewing numbers are ok, viewing to offer ratio is woeful as so few are in a position to do so.

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  3. smile please

    Sorry are people suggesting the government get rid of help to buy because it’s too good for ftbs?

    I don’t quite see what the problem is? Maybe agents that have new build developments near them educate sellers they have to be keaner on price to attracted ftbs.

     

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    1. CountryLass

      I used one of the original help to buy schemes back in 2005, but that was available for any property, not just new builds. When I first heard that they were making it for new builds only, I pointed out that in effect they would be removing one of the supporting legs of the housing market, the buyer of a ‘pre-loved’ First Home. The owners of which needed to sell to buy their Second Home. (rinse and repeat).

      I think they need to make it open to all first time purchase again, not just new builds. All that has done is help out the house builders at the expense of Joe Public.

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  4. Essjaydee51

    Perhaps it’s you possibly being a Londoner (as I am) so maybe a slip of the tongue but your conversational piece is open nationwide not a chat in the pub with mates that you want to big yourself up to.

    It hurts to know that with over 15 years under your belt that instead of being a vocation, career or profession, you refer to our business as a game!

    Thats a shame and so irresponsible.

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    1. nickk25

       

      The word game its just an expression. It has been my career/vocation/profession, one I have been successful and proud of. I just thought I would keep it light hearted. I didn’t write it as an article, it was just my personal blog.

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  5. JMK

    “Prime central and City fringes have definitely felt the impact of the Stamp Duty changes for investors and the fact they can no longer offset their mortgage interest fully when paying capital gains tax”

    I’m sure this is just a typo but MIR has nothing to do with CGT

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  6. 40yearvetran08

    Nick I totally agree with your comments. I also think H2B is a time bomb. Prices being paid are inflated, 40% H2B loan in London that in 5 years time interest will start being paid. If they want to sell in the interim who is going to buy the property as the buyer will not be able to qualify for the same loan. Smile please comments about educating sellers is if course correct but who is going to tell the H2B seller that if they want tò sell now they are going to have to take a hair cut so ultimately H2B may not be the golden goose it first appears. It would be much better if the government made 95% loans available for ftbs at a competitive rate that allowed a buyer to buy competitively in the whole of the market and not just new builds. House builders have been the lucky recipients of H2B as we have seen with Persimmon homes bonus scandal. The fact the government did not foresee this distortion underlines that they are clueless as to what will happen when they fiddle with the housing market.

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  7. Mark Connelly

    Come on guys there are few points made here digging the guy out that are unnecessary. Semantics.

    Without a doubt there will be an impact down the line as a result of “Help to buy” It’s a government initiative which means intentions are generally good but execution is fundamentally flawed and there are always unintended consequences.

    Help to buy has accelerated buyers into the market who otherwise can’t afford to buy. This leads to developers maximising prices that they otherwise couldn’t have achieved. How do these buyers who can’t really afford it, pay for it in five years when the real cost of ownership kicks in. What happens if it doesn’t value up in five years. Are these buyers to be the new zombie home owners, trapped in a home they can’t sell to cover the loans, because in truth they are not particularly attractive homes and only ever appealed because of “Help to Buy”

    Having said all that I remain unconvinced that ” Help to Buy” has sucked the FTB away from traditional/period homes to new build and impacted on the volume of buyers at the bottom of the chain. I don’t think that without “Help to Buy” these guys were ever really in a position to buy. So you didn’t lose what you never had.

    When you steal tomorrows buyers from the future and bring them forward to today by allowing them to buy what they otherwise can’t afford you create a bubble. IMHO new build “Help to buy” is a bubble which in five years will surely make a loud pop.

     

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    1. nickk25

      Great point about accelerating future buyers. I honestly dont believe HTB has sucked all the FTB out, it’s just one of many reasons. 

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      1. Shaun77

        I know a number or people personally that asked my advice about H2B. They were being sucked in to a couple of “rabbit hutch” new build apartments (kitchen in sitting room etc). The marketing glitz and glamour had made them feel like it was an opportunity not to be missed.

        I advised them against it, put them in touch with a good mortgage broker and they’ve now both gone on to buy 2 bed houses with gardens. So, I disagree that these buyers wouldn’t exist without H2B, it’s just that the hype, together with the belief that the government is subsiding their purchase initially (leaving them with more disposal income etc) is tempting them in and away from the traditional market.

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    2. CountryLass

      Help To Buy worked when it was available on all proerties, not just new build. I bought my first place in 2005, and sold it in 2015 with enough for a 10% deposit on my current place. It would have been more, but we remortgaged to raise capital to redo the bathroom, so that took a couple of thousand out of use.

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  8. dannymagix79

    Exactly the point I was making a few weeks ago, when speaking to friends in the game, FTB’s in the main if they want to get onto the ladder are buying new.  As with all helping the first time buyers schemes they are ticking time bombs none more than this.  When the key workers allowance came in, the government got lucky (and so did the buyers) as prices were shooting up, so the investment inevitably came back, but now house prices are slowing (and in some cases falling at the bottom end as Nick says) what will happen.

    We do need investors to take the slack at the bottom end, but we also need of schemes to allowed second, third, fourth home time buyers move, as that is where the market is stifled massively (IMO) and therefore people are extending rather than moving, which is something I have had to do as it is £200k for me to move up but was just under £100k to do the work, so a no brainer.

    I feel another part of the market (again in the London and south-east) is people are taking amore commercial view about properties (maybe subconsciously) and therefore confidence in house prices is a massive factor, as many people are happy to rent if they are moving for schools/work.

    Big thinking caps needed by Government but they need to speak to the guys on the coal face!!

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  9. Expertinafield28

    My feeling on this is that if the FTB didn’t have HTB, then they wouldn’t be a FTB as they are effectively priced out of the market in all other circumstances. Much like what Mark Connelly had to say above.

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  10. jpgraham281268

    Interesting and insightful article, with some well stated arguments and observations.

    On the topic of Help to Buy, I am currently investigating the scheme’s effectiveness in London as part of my postgraduate dissertation.

    If you have taken part in the scheme or know of someone who has then I would greatly appreciate if you could complete a short survey or share the link below. Thank you.

     

    https://docs.google.com/forms/d/e/1FAIpQLScLm3oeNr05AijBjT3ao1ZZRtKFcCAX626tc4a7MYSHUVn09Q/viewform?usp=sf_link

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  11. Heddois

    So funny all of the estate agents blaming Brexit, the government etc., when the real elephant in the room is the massive London&SE price bubble and first-time buyer affordability.

    House on outskirts of London 20 years ago sells at £80k. Same house today at £300k, despite the fact that wages have only risen a little over the same period. Call me Sherlock but I think that’s your problem. That’s why the housing market’s died … because FTBs who could once buy at 4x multiples are now being expected to afford 10x.

    What planet are you people on?

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    1. nickk25

      Clearly we know that is the reason. But why do you think that has happened. Back in 2016 when I was listing property at £300k and it was selling for £340k in sealed bids, whose fault is that, the agents?

      Or is it that demand was outstripping supply?

      People were less interested in the outskirts and over inflating the city fringes. Buyers were paying over the odds and developers have cottoned on to the fact that FTB’s will now do the same because the government is helping do so.

      There are so many other issues that have brought us to where we are that I could go on about (red tape for planning of unsed land, wages, etc) but as you say the real elephant in the room IS the price bubble. But just by saying that is not enough. How did this happen. Are you suggesting the government do not have a part to play?

      All this article is saying is there are a lot of factors and one that many are overlooking is this help to buy which, while it is helping people get ion the ladder, it is not without a cost to these people and the market in itself. Whenever the government get involved in the housing market they so narrow sighted.

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