The return of Help to Buy

This week's announcement of a first-time buyer scheme echoing Help to Buy prompted a sharp rally in UK housebuilder shares, and for good reason.

Barratt Redrow rose 16% on Monday, the day Prime Minister Andy Burnham revealed that buyers will need deposits of just 2.5% to buy a new home, while the government will provide loans of up to 20% of a property's value. Persimmon climbed 17%. Taylor Wimpey surged 23%. 

The announcement suggests “the government has been listening to concerns,” Knight Frank's Oliver Knight tells Bloomberg. “The focus over the last few years has been on increasing supply through planning reform but demand is an equally important part of the equation.”

There were clues this was coming two weeks ago via the release of a study conducted by researchers on behalf of the government that found Help to Buy represented "very high value for money". The scheme is estimated to have generated a "net present social value" of £25.1 billion in 2024/25 prices over its lifetime. Between 15% and 30% of first-time buyer mortgages in England could be attributed to Help to Buy during the decade to March 2023, contributing to a 15% increase in new builds in England, while prices are estimated to have risen only 2% higher than they would have otherwise, though there were larger gains in more expensive areas.

The real game-changer

The report did find that there was little effect on mortgage sales in more expensive areas, while a little more than half of surveyed beneficiaries of Help to Buy said they could have bought anyway, which is why the new scheme – named Your First Home – is likely to be more targeted. Regional price caps and income thresholds will be announced in the Budget on October 28th.

Nicolas Wiecek, a senior economist at consultancy Public First, estimates that Your First Home could enable an additional 210,000 households to afford their first home – a 60% increase. That would unlock 26,500 to 33,000 additional new homes a year if it runs for three years. Those estimates are of course subject to the decisions made between now and the Budget and assume a 5% interest rate. 

Writing in the Times, Rob Perrins, executive chairman of Berkeley Group, said the scheme is a welcome step that will support traditional greenfield housing developments outside of southern England, but warned that the scheme will need a significantly higher price cap, higher household income cap and offer larger equity loans – "Otherwise, it simply won’t help buyers in postcodes with higher prices and deposit requirements."

The real game-changer, he said, would be a reduction of stamp duty on new homes, "because this sky-high transaction tax is now the main barrier to housing delivery in urban areas."

Jam tomorrow

Burnham's speech at the Labour Party conference yesterday included loosening the triple lock on pensions so they rise by either CPI or 2.5%, depending on which is highest, rather than automatically tracking earnings when wages rise fastest.

A publicly owned Great British Grid within Great British Energy will compete with private operators and speed up grid connections. Burnham will also seek closer UK–EU ties and said he would set out a longer-term approach later this year, without going into detail. He told the BBC this morning that he could "go all the way" in rejoining the EU.

Lavish spending promises are pushed far into the future, as is much of the friction. The triple lock won't be loosened until 2030, for example. The FT's editorial board calls it a ‘jam tomorrow’ vision – Burnham is hemmed in by the state of the public finances and the cost of borrowing.

"The most immediate imperative... is to show that Burnham and Healey have credible plans to control spending rather than pile yet more taxation on business and the wealthy," the paper says. "The Budget on October 28 is shaping up as a moment that will reveal whether Burnham’s expansive vision of social democracy represents a credible plan that can be funded, or an unsustainable clash between Downing Street ambition and the hard realities of fiscal arithmetic."

Tentative momentum

Leading fixed-rate mortgages have climbed from below 4.5% to about 4.8% in the space of a month, according to Knight Frank Finance. That has been enough to sap the tentative momentum that had been building in the market.

House prices have risen by just 0.8% over the past year, the lowest since the summer of 2024, according to Zoopla figures released this morning. The number of homes for sale has climbed 5% compared to the same period a year ago. Agreed sales are down 9%. 

Bank of England figures released yesterday showed that lenders granted 54,900 mortgages to homebuyers in August, below an average of around 60,100 over the previous six months and down 15% on the same month a year earlier. 

In other news...

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