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A New Dawn? – not quite

consider this,
That, in the course of justice, none of us
Should see salvation: we do pray for mercy;

Well, it’s a start. The Government launched its NewBuy scheme on Monday which, it hopes will boost sales of new build houses and bring in new jobs to a construction industry that desperately needs them.

We’ve been asking for something like this for year – Mark Oliver from H+H UK for one, in a blog on this very website and, as a mechanism to get the housing market moving again, it is very welcome.

What have been the main barriers to a healthy housing market in the last few years? The recession, job insecurity, interest rates? Nope, although these have, of course, played their part. It’s been the lack of finance and the need to stump up huge deposits.

Since the financial crash of 2008 the housing market has been one of two things, depending on location – either red hot, with houses selling before they’ve even appeared on Right Move, or sluggish in the extreme, with potential buyers stymied by the twin whammy of needing a whacking great deposit and a banking system that is, on paper, terrified of making the same mistakes it made a few years ago. (Or, more likely, terrified of being found out to have made the same mistakes, which isn’t the same thing at all).

So, the new scheme (which isn’t just for first time buyers but, rather, for anyone wanting to buy a new build home) should help.

It will mean that potential buyers won’t have to stump up a 20% deposit; instead they can make do with 5%. As the scheme is for houses up to £500,000, this could mean the difference between having to find £100,000 and scraping together £25,000.

The problems with first time buyers is one thing, but another big block in the market has been those ex-first timers who bought their typical first-time buyer flat then found that, life moving on in the way that it does, one or two kiddies later, the property is no longer suitable.

If you have a lot of equity in your first home, then it’s easier to get the deposit together for your second.

But the inexorable rise of house prices over the last two decades means that most people – and I am generalising horribly here – have been at their financial limits. Anyone who has kids knows that saving extra money in order to fund a bigger deposit on the next house “would be nice” but is certainly not “essential”. Once the Ocado bill and the kids’ shoes have been sorted, there’s often precious little left.

So, it’s a good thing. But there are reservations.

One of the worries at the back of my mind is that one of the things that got us in this mess in the first place was people borrowing beyond their means, ending up in properties that they really couldn’t afford. I know that supporters of NewBuy say that there will only be an issue if prices fall so that we get a negative equity situation (itself only a problem if you want to sell the property).

Because interest rates have been so historically low, repayments on mortgages have not been as hard to fund as in previous recessions. What happens when interest rates go up?

And, of course, this is only a scheme aimed at boosting sales of new build houses. Yet, it’s just as hard to stump up the 20% deposit for a decently-located 1930s semi as it is for a newbuild ‘executive home’.

For the industry to really get out of this mess we need a turnover of properties throughout the supply chain. Property transactions are what fuels property investment and the RMI market.

So, as a start, NewBuy is good. But our salvation, it ain’t.

About Fiona Russell-Horne

Fiona Russell-Horne
Group Managing Editor across the BMJ portfolio.

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