"Lenders will always see new build as different and, indeed, potentially riskier, but significant progress has been made in the last ten years to put lending activity on a surer footing."
Britain’s new build market needs to confront its dependency on the Help to Buy equity loan scheme, according to the Intermediary Mortgage Lenders Association.
The Help to Buy scheme has so far made up 27% of all new housing completions and 5% of all housing transactions from April 2013 to March 2017, with equity loans backed by an estimated £21bn of government funding. Furthermore, the ten largest housebuilders attribute around 35-40% of their sales to Help to Buy.
The IMLA report highlights concerns over this level of dependency, and suggests that withdrawing the scheme without replacement on its current timetable might weaken the new build market to the detriment of borrowers, government, housebuilders and lenders.
The Association is calling on mortgage lenders to actively work with government and housebuilders to inform decisions on a future replacement scheme beyond 2021.
IMLA's report also highlights the ‘live issue’ of new build valuations and calls on valuers to remain vigilant towards unjustified new build premiums. While the advantages of purchasing a new home – such as an NHBC guarantee and lower running costs – justify a higher price, IMLA the premium has risen significantly in recent years and has been impacted by less sustainable factors including builder incentives and even government support schemes such as Help to Buy.
Lastly, it suggests that the use of leasehold by housebuilders with the inclusion of onerous ground rent clauses makes it questionable whether some new properties have any substantial long-term value; where ground rents double every 10 years, a £250 ground rent will become £8,000 in 50 years and £32,000 in 70 years. Some lenders have stopped lending on these properties altogether, while others approach with caution on a case-by-case basis.
Peter Williams, Executive Director at IMLA, commented: “Aside from the impact of any decisions on the future of Help to Buy, lender sentiment towards new homes is influenced by the new build premium, builder incentives and ongoing concerns about the UK housing supply model which for a variety of reasons has consistently failed to deliver adequate number of homes to meet demand.
“Lenders will always see new build as different and, indeed, potentially riskier, but significant progress has been made in the last ten years to put lending activity on a surer footing. Government stimulus has played an important role in stimulating this market, and whether this means on-going support to help buyers with modest deposits to buy new properties is needed beyond 2021 remains to be seen.
“Industry should stand ready to support initiatives that ensure a healthy supply of new homes for first time buyers with modest deposits, while ensuring that the solution works effectively for lenders as well as housebuilders.”