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Housing market reliant on Help to Buy

Fears are growing that the housing market has become too reliant on Help to Buy as research shows the scheme has funded up to 97 per cent of new build sales in some regions.

Through the government’s Help to Buy equity loan, buyers can borrow 20 per cent of the cost of a new build property from the government with no loan fees for the first five years of owning the home.

This means buyers only need a 5 per cent cash deposit and a 75 per cent mortgage to make up the rest. In London the government loan even amounts to 40 per cent.

The initiative has helped thousands of borrowers take their first steps onto the property ladder with more than 200,000 properties being bought via the scheme since it launched on April 1, 2013, according to data from the government.

Research from Project Etopia, a builder of modular homes, showed the scheme is responsible for up to 97 per cent of new build sales in areas such as Northampton.

On top of this more than half of all new-build property purchases in England were funded through the Help to Buy equity loan scheme last year with reliance on the scheme even more acute in towns and cities.

Among the 105 locations in the study, 20,179 (54.6 per cent) of the 36,950 new build sales in these areas were funded by the scheme.

Help to Buy hot spots included Burnley, Derby and Warrington, where more than 90 per cent of new builds were purchased with the scheme.

Even in places where the scheme was used the least — Cambridge, Portsmouth and Norwich — still about one in five new builds were purchased with government help.

According to Project Etopia, the ending of the government-backed scheme in 2023 means the nationwide housing market would be dealt a serious blow.

Help to Buy is set to end in 2023 but will face new restrictions from 2021, when it will only be available to first-time buyers and be subject to regional price caps.

Joseph Daniels, chief executive of Project Etopia, said: “Building more homes is the long-term solution to the housing crisis, not a free leg up, but this startling research shows just how far Help to Buy is underpinning and driving the new build market across the whole of England.

“There is a danger that, once the scheme ends, the rug could be pulled out from beneath those areas that have come to rely on Help To Buy to too great a degree.”

Kevin Dunn, director at Furnley House, agreed that it was “definitely a concern” for some areas and said he hoped the current political uncertainty would soon pass so issues like this could be addressed.

He said: “These everyday problems are being skipped over. Hopefully the government will either extend the scheme or introduce something in its place to help such areas.”

Mr Dunn also thought the market could see new developments with smaller and potentially more affordable housing once the scheme is restricted to first-time buyers in 2021.

He said: “Developers may change the way they design the sites. They may have to have more affordability and smaller homes.

“This is a good thing — clients I speak to find it hard to find a new build two-bed home. Most are larger three or four beds, sometimes worth half a million pounds.”

The Help to Buy scheme has created a bit of a bubble in terms of property prices, according to Dan White, of White Financial Services.

He said affordability of new builds in Help to Buy heavy areas had skewed consumer views on the cost of such properties, because the extra help from the government was seen as “monopoly money”.

He added: “Once the scheme ends, you may find either a shortage of new builds being built or a number of new builds unable to sell.

“On top of that, those who have bought through the scheme could be unable to sell due to a lack of equity in a property that has not necessarily increased in price.”

Just earlier this week advisers were warned of a crunch in the Help to Buy space as more borrowers using the scheme are to face charges for the first time while others will see theirs hiked.

Many of those who used the scheme in its first year are now facing higher fees, while those in the second year are facing fees for the first time.

By Imogen Tew

Source: FT Adviser

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New-build market in the UK to benefit from genuine competition for water connections

John March, Water Director at GTC shares his views on how the new-build market in the UK is to benefit from genuine competition for water connections

From April 2018, measures introduced by Ofwat, the UK water regulator, sweep away barriers to competition and, for the first time, give housebuilders and developers in England and Wales a real choice of providers for new water and wastewater connections. This opening up of the water market is expected to bring developers in both the private and public sectors significant benefits, including the opportunity for developments of all sizes to adopt a truly multi-utility approach, sourcing all of a site’s utilities through a single network provider.

Until now, there have been very limited opportunities for developers to source their water networks from anyone other than their local water company. In England and Wales, water companies supply domestic water and wastewater services on a monopoly basis within their specific geographical areas. It has always been an option for new developments to choose a competing water company, but under the previous rules, it was only financially viable for competing companies to become involved on the largest projects.

Water competition – the changes

These competing water companies are referred to as NAVs – ‘New Appointment and Variation’ – and are licensed by the regulator on a per-site basis. NAVs own and manage the site network providing billing, maintenance and customer services. They either install the network themselves or adopt networks installed on a developer’s behalf by Self-Lay Providers (SLPs).

Following an investigation into how the water market was operating, Ofwat identified several significant barriers to competition. These involved the way in which tariffs for bulk water supply and income offset were calculated. The changes being introduced will make it easier for developers and competing water companies to establish what an incumbent water company will charge to connect a new development to their existing water network. The charges will also be fairer, with new connections being the same irrespective of who the final network owner will be. In addition, Ofwat has undertaken to streamline the lengthy licensing process required to appoint alternative network providers, such as GTC.

Bringing water into line with the markets for gas and electricity

Housebuilders and developers are used to the freedom to choose their network providers for gas and electricity connections and indeed most of new electricity and gas connections are undertaken by independent network providers. The gas and electricity markets in the UK were liberalised twenty years ago and the opening up of those markets has delivered increased competition on price, higher service standards and more innovation and development. The same benefits will now be available in the water and wastewater markets. The Home Builders Federation (HBF), the representative body for the home building industry in England and Wales regards these developments as so significant that it has established a committee to focus on how these major changes will impact its members.

GTC, as the UK’s largest independent utility network provider to the new-build market, has welcomed the opening up of the water market and has been working with Ofwat and Water UK, which represents the water industry, to help make these changes happen. GTC has considerable experience of being a NAV licence holder and is already responsible for more than 8000 live water and wastewater new connections, with contracts to build out tens of thousands of further connections on sites from Newcastle in the north to Weston-Super-Mare in the southwest. GTC is looking forward to being able to offer the whole housebuilding sector the opportunity to benefit from its different approach to network provision across all the utilities.

The future is… multi-utility

With the arrival of genuine competition in the water market, adopting a multi-utility approach is now a realistic option for housebuilders and developers working on sites of all sizes. Now all a development’s utilities – water, wastewater, electricity, gas, ultrafast FTTH (Fibre-to-the-Home) and in some case district energy – can be sourced from a single independent provider. Utility procurement can be simplified with only one set of tenders, one company to deal with and a single project manager who oversees the installation of all the utilities with all the time and cost-savings, that would deliver.

GTC and its sister company Metropolitan, has worked in just this way on several flagship projects such as King’s Cross and Greenwich Millennium Village in London and has direct experience of the benefits that co-ordinated utility installation and combined network management can bring. Those benefits will now be available to much smaller developments, even those of as few as 50 houses.

Developers need to act now

The new measures come into force in April and every housebuilder and developer needs to consider how these changes will affect their utility procurement. Provided an order has not yet been placed, it is still possible to review options.

Robust competition across all the utilities for new-build developments can only be a good thing. It is now up to housebuilders to take full advantage of these new opportunities.

Source: Open Access Government