Prime Minister Andy Burnham has been warned that his proposed Your First Home scheme could risk becoming a 'horror show', as new figures show the number of homes getting planning permission has fallen by a fifth.
The scheme, unveiled at the weekend, would allow first-time buyers to secure a property with a deposit as low as 2.5%. A loan equivalent to 20% of the property's value would be made available to assist with the purchase, initially interest-free to keep it within reach of buyers.
Help to Buy comparison and negative equity fears
The Times has warned the scheme could leave buyers vulnerable to negative equity, where homeowners owe more on a mortgage than their property is worth. The newspaper reported the case of a flat owner who used Help to Buy and could be left with a £42,000 shortfall if he sells up.
Estate agents Savills have warned such cases could become more common under Your First Home, owing to its lower deposit threshold of 2.5%.
Expert warns on caps and limits
A leading housing expert has warned the Prime Minister that the scheme must not set property price caps and income limits too restrictively, or it could exclude too many people.
Aneisha Beveridge, research director at Connells Group, said: "The sharp fall in planning permissions highlights the scale of the challenge facing the Government if it is serious about delivering 1.5 million homes. Housebuilders are grappling with a difficult combination of higher development costs, planning delays and weaker buyer demand, meaning many sites simply don’t stack up financially.
"Without confidence that there will be enough purchasers at the right price point, developers are understandably cautious about bringing forward new schemes. The proposed new equity loan scheme has the potential to change that relatively quickly. One of the key lessons from Help to Buy was that boosting first-time buyer demand gave developers greater confidence to invest and increase output quite quickly, with new-build delivery rising strongly in the years that followed its introduction.
"However, the eventual impact will depend heavily on the detail. Income limits and property price caps that are set too tightly could concentrate the benefits in a relatively small number of markets, while a broader scheme would support more buyers and unlock a larger increase in housing delivery."
Burnham's pledge to first-time buyers
The Prime Minister said at the weekend: "Too many young people are struggling with the cost of housing, with many giving up hope of ever having a home to call their own. So we will step in to help more first-time buyers on to the housing ladder, especially those who can't call on the bank of mum and dad.
"Your First Home will get them the keys to their own front door, and give builders the confidence to deliver the high-quality new homes the country needs. This Labour government is bringing back hope for people across the country."
The Times reported the case of Peter, not his real name, who bought a London flat for £460,000 in 2020. The purchase was funded by a £23,000 deposit, a £184,000 Help to Buy loan and a £253,000 mortgage from Barclays. Due to service charges and building safety issues, he struggled to attract a buyer and reduced the asking price to £300,000. Should he sell at this figure, £222,000 would need to go to Barclays to settle his mortgage, with a further £120,000 to be repaid to the government, entirely wiping out his deposit and any equity, leaving him needing to find an additional £42,000 to cover the remaining shortfall.
Lucian Cook from Savills told the newspaper that cases such as Peter's could become even more widespread under Your First Home, but said "if interest rate come down once inflationary pressures subside, house prices should rise. That reduces the risk of negative equity and is one of the advantages of bringing this in at this point in the housing market cycle."
