Help to Buy

Help to Buy has so far made little impact in London where house prices are highest. The introduction in this week's Autumn Statement of a London Help to Buy equity loan worth up to 40 per cent seeks to address this problem. However, buyers who make use of the scheme will still be mindful of taking on a large debt burden.

With the average cost of a home in London at about £500,000, a 40 per cent equity loan represents a debt of £200,000 which accrues interest costs after five years in addition to servicing a mortgage of up to £275,000.

Buyers will still need to find a deposit of 5 per cent which, since the average cost of a home bought using Help to Buy in London has been £330,000, means at least £25,000. The effect of a 40 per cent equity loan, therefore, will enable buyers to purchase closer to the London average.

*London flat average price Land Registry August 2015

Shared Ownership

Plans to deliver 135,000 new shared ownership homes will enable more people to get on to the housing ladder and help open up the property market to renters on median income who struggle to save for a deposit.

Enabling more people to buy could act as an incentive to increase the rate of housebuilding. Our analysis shows that the rate of housebuilding tracks (in a relationship of ca 1:10) the number of property transactions which have been held back by a constrained mortgage market and high deposit requirements. Shared ownership schemes provide another route onto the housing ladder but will still require buyers to have a steady income and credit history and access to a modest deposit. Nonetheless, this initiative will narrow the gap between those with access to the bank of mum & dad in raising a deposit for market purchase and those without.

The announcements in the Autumn Statement have potential to open up new markets to housebuilders, though the extent to which it achieves this is depends on how it is viewed relative to other forms of housing delivery. However, it will not help households on the lowest incomes.

Further information

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