The impact of the Government's schemes

House Building

Given that Mortgage Guarantees will be available for the purchase of existing as well as new build purchases, we believe it could result in additional house building of approximately 12,000 units a year (beyond those unlocked by Equity Loans) within three years.

The speed of increase in house building will be limited by the capacity of the house building industry to increase output having regard to skills, capital and management. Precedents from previous periods of expansion suggest that, at best, building output could expand to about 130,000 a year within five years. Over the last 25 years building by private sector house builders has not exceeded 150,000 homes a year.

Growth in Private Renting

We do not believe that the provisions are likely to halt the growth of the private rented sector although they may temper it.

DCLG figures indicate that in the period from 2003 to 2007, during which time mortgage finance was readily available, the number of households in the private rented sector rose by 1.1 million households in the UK at an average of 217,000 households per annum. The same data indicates that the annual growth in private renting increased by closer to 245,000 households in 2011.

This reflects the fact that even prior to the credit crunch there were issues of deposit and mortgage affordability. Though both will be eased by the proposed measures neither will be eliminated.

It is likely that lenders will still be looking for average deposits of around 10% of purchase price from those benefiting from the scheme. This would mean an average deposit £17,000 across the UK.

Accordingly, we believe that levels of private renting are still likely to grow by at least 210,000 households per annum over the next three years.

Help to Buy scenario

Increased access to home ownership, combined with a potential reduction in the cost of mortgage debt because of the continuation of Funding for Lending, is likely to result in an increase in rates of projected house price growth in the short to medium term.

However, this is likely to be limited by underlying affordability constraints and the weakness of the underlying economic recovery.

Accordingly, we have devised a Help to Buy scenario which we have compared to our adopted five year forecasts for UK mainstream house price growth (see Table 1).

Build to Rent

Vital to meet housing need

Of greater importance to meeting housing need in the long term is to increase the size of the Government Build to Rent scheme five-fold, taking the total amount allocated to £1 billion.

A first round of 45 projects are set to receive a share of £700 million, with a second round of bids for the remaining funds set to open later this year. The projects have the potential to deliver between 8,000 and 10,000 new homes.

The fund promises to play a key part in establishing residential property as an institutional investment asset class, providing proof of concept which we believe will lead to rapid expansion of institutional investor activity, at scale.

Taken from
Briefing Note: The Budget - How Help to Buy will affect the market