How Effective Might the Help-To-Buy ISA Be for First Time Buyers?

Younger working adults in the UK struggle to buy homes, largely because a deposit is hard to save. This programme might help, particularly outside  London.

When UK Chancellor George Osborne announced the Help to Buy ISA in January 2015, it was cynically viewed by some as the Conservative’s election-year ploy, a response to Labour’s proposed stamp duty elimination for first-time buyers. There is another way of looking at this: the fact the topic of first-time homebuyers played into the national election certainly speaks to the importance of the cost and short supply of housing.

Post-election, the Help to Buy ISA is on track for implementation in the fall of 2015. It enables would-be homebuyers to deposit up to £200 per month – up to a total of £12,000 – into a tax-free account that will be matched with up to £3,000 from the Government (£1 for every £4 saved) if and when that money is used to buy a first home. It will give the new homeowners a structure for savings along with the financial incentives to do so.

Detractors of the programme suggested that the projected cost to the Government of £835 million could instead be used to directly build homes, including affordable housing. More building takes place currently in the private sector due to the work of property fund managers and the like, investors who develop housing where and when planning authorities allow and where it serves a local economic need.

At least the scheme seems to favour buyers of entry-level-cost housing. A spokesperson for property firm Savills told The Guardian in March that they predict “it is more likely to help get buyers over the deposit hurdle in the lower value, lower growth markets of the Midlands and the North.” He indicated that affordability was less likely for younger buyers in London and the South East, where capital growth land opportunities are less likely given the degree of development and high price of land in those areas.

So it seems that investors in property funds might do well to focus on economic development and growth industries in places such as Peterborough, Manchester, Birmingham, Allerdale and Liverpool. Younger families are reportedly moving out of London and to where jobs are available and property fund investors are building price-accessible homes that further facilitate the local economy (those involved in UK land investments take note).

This move away from the Capital City is a theme in capital growth investing for housing as well as industry. The increasingly high prices in London make it more challenging for entrepreneurs and established firms to set up business operations there and attract staff at reasonable wages. Commutes of longer and longer distances have become necessary. Property fund investors who can instead buy property near Southampton or Peterborough, for example, then convert it to more valuable residential or commercial property, are more likely to find a ready market of buyers due to the Help to Buy ISA programme.

There will always be opportunities for capital growth in London as well as the rest of the UK. However, the equation that can provide the fastest valuation increases – the conversion of unused land to housing by way of council approvals – may more likely happen up North, down South and to all points Eastand West.

Investors should always investigate risks relative to their investment portfolios. In almost every circumstance, the investor should speak with an independent financial advisor before taking a position.

Does the Conservatives’ 2015 Victory Mean More Houses Will Be Built?

The fear of a mansion tax and general uncertainty preceding the May election stalled house sales and building. Prices have risen since May, emphasising demand.

On the heels of the Conservative’s definitive election victory in May 2015, estate agents and large home owners breathed a sigh of relief: there would likely be no mansion tax as proposed by Labour. Sales of homes, especially in London, began to pick up within days. The Guardian reported on June 1 that “boom conditions are back in the UK housing market and prices look set for a new surge before the end of the year,” crediting the election outcome for galvanizing buyers and sellers.

But do sales and price increases mean that more homes – particularly those in the lower and middle price range – will be built? Can the UK get back to building the quantity of houses that will help alleviate the crippling price rise of homes for sale, as well as rising rent? Can the key players involved in development – lenders, developers, property fund partners, builders – join forces to serve the estimated one million households that need a place of their own?

A property fund partner will explain there is not a simple relationship between demand, pricing and supply – the classic relationship that is (usually) fundamental to economics. There’s a little more work (read: bureaucracy) involved, as most seasoned people investing in UK land understand.

When developers and homebuilders want to go about the business of constructing residences, it’s really only after specialists in planning effectively convince local councils that the homes are a net-positive for the community at large. Investors in UK property funds in essence back those specialists, who identify land that is ripe for conversion to development. This approach to alternative investments generally occurs where housing demand is growing – often due to increased employment in the vicinity.

The Home Builders Federation weighed in regarding their hopes for a house building acceleration after the election. The organisation notes several key factors that should influence the Government in its policy formation. They include:

• Building is up in 2015: 40,340 new homes were started in the first quarter of the year, the highest such number of any quarter since 2007. 
• Building was already on the rise in 2014: The new home starts, numbering 137,310 last year, represent a 10 per cent increase over 2013.
• Average house price is  now £193,048: Mortgage lender Halifax said in May that this represents an 8.5 per cent rise over a year ago.
• Completions still short of need: England needs to build 230,000 homes each year, and even if the strong new start building numbers continue apace (which would be about 161,000 homes) it would fall short of the need for this year alone by 70,000 homes. Across the UK, the existing shortage is believed to currently stand at one million homes.

The Royal Institute of Chartered Surveyors (RICS) considers this continued shortage and rising prices a “national emergency” and said as much “in unusually forceful language,” according to a mid-May report (carried by Reuters news agency). The RICS statement was directed at the Government, but participants in alternative investment funds should take note. Housing wasn’t the most prominent issue in the May elections, however the price of housing will almost certainly grow in importance in the near future. A report by the surveyors predicts a price rise of 25 per cent within just the next five years.

Whether an investor choses alternative funds or traditional stocks and bonds, the risks and relative positions of those investments should be made in balance with individual family wealth-building strategies. Speak with an independent financial advisor before taking a significant position.