The weekend saw a flurry of press articles describing the onset of Help to Buy interest payments as a “ticking time bomb”, rhetoric which we consider to be overblown. This was followed by yesterday’s housing speech by Theresa May, which confirmed the government’s ambitious commitment to increasing supply to 300k homes per year by overhauling the national planning policy framework and urging developers to build once planning permission has been granted. Housebuilder shares prices rose yesterday, a reflection perhaps that the speech contained no materially onerous new measures to influence housebuilders’ behaviour.
Theresa May’s speech and Help to Buy coverage
Theresa May’s speech reaffirmed the government’s commitment to increasing housing supply to 300k homes per annum, an ambitious target not achieved since the 1960s. To achieve this, the national planning policy framework will be overhauled and developers will be urged to build once planning permission has been granted. Green belt protections will remain. The initial response to the speech has been somewhat critical with developers arguing that they are not aggressively land-banking and local authorities pointing out that 90% of planning applications are granted. The property industry has eight weeks to respond to a consultation on the proposed changes, whilst the ongoing review by Sir Oliver Letwin should draw further conclusions on how best to close the gap between planning permission and building.
Last weekend also saw a flurry of press articles describing the onset of Help to Buy interest payments as a “ticking time bomb”. Whilst acknowledging that households will have to budget for the onset of fees, six years after they took out their Help to Buy loans, in our view, the rhetoric is overblown. For a £200k house, the initial interest cost amounts to about £14 per week.
It is worth highlighting that, although interest rates have now started to increase, the average interest rate on a 75% LTV mortgage is still some way below its level of five years ago, when the first Help to Buy purchases were made. This means that these buyers should be better off now (even with the Help to Buy fees) than they were when they first took out their mortgages. On top of that, the home-owner may well have seen pay increase in the intervening period, further improving affordability.
Interest rate rises need to be monitored but we see no ticking time bomb in the short term.
Download chart – Interest rates on 75% LTV mortgages
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