The core problem remains that irresponsible government schemes aside, we simply have far more demand than supply - housebuilding is at its lowest since the 1920s.
House prices have risen by nearly 10% countrywide during the last year, while in London this figure is nearer 19%. This is pushing home buying further and further out of the reach for first time buyers. It’s even causing difficulty for people who already own but need to move, who find themselves struggling to acquire a new mortgage.
Meanwhile the rampant increase in the cost of living is making it ever harder for aspiring first time buyers to save up a deposit, particularly as many lenders now require a 20% down payment. For the average UK property, which now costs £250,000, prospective buyers would need to find £50,000 before they’ve even thought about stamp duty, fees or the cost of moving.
‘Help to Buy’ to the rescue?
This is the background against which the Coalition government introduced their ‘Help to Buy’ scheme, allowing buyers with a 5% deposit to access a mortgage for properties under £600,000. The government guarantees the additional 15% until seven years have passed, when it’s expected that most people will have at least 20% equity in their home.
Between October 2013 and March 2014 7,313 ‘Help to Buy’ mortgages were approved, worth just over £1 billion.
Latest government data shows that 80% of mortgages backed by the scheme from October to March were given to first-time buyers, while the most popular properties bought are terraces and semi-detached, making up 38% and 36% of ‘Help to Buy’ purchases during this period.
These figures suggest that the scheme is achieving its objective in helping creditworthy buyers who are struggling to put together a 20% deposit against a background of rising living costs and stagnating wages.
But is it exacerbating the housing bubble?
On the surface ‘Help to Buy’ sounds like the type of idea that left and right can get behind: giving hardworking people a chance to better their situations. However, the scheme is attracting ire from across the spectrum, with some calling for it to be discontinued.
Due to run until 2017, Cameron says that he will consider paring it down early if he feels it is stoking an unsustainable housing boom, but is that already happening?
Critics claim that it is helping to push prices up, worsening the very issue it’s trying to address, and driving the economy towards instability in an attempt to win votes. If that’s not bad enough, the Commons Public Accounts Committee (PAC) recently published a report saying that the scheme is exposing taxpayers to unnecessary risk and unknown long-term administrative costs.
What’s more, according to government figures the majority of homes bought through ‘Help to Buy’ are located in the Midlands or North East, whereas the greatest housing need is in London and the South East. Even with the scheme, it seems that house prices and the cost of living are still pushing home ownership out of the reach of many in the UK’s most populous region.
What else is driving the housing boom?
Only 1.2% of mortgages issued from October to March in the last financial year were part of the ‘Help to Buy’ scheme. It seems unlikely that such a small increase in home ownership could fuel a countrywide house price boom, particularly in London, where government figures show that just 385 people bought a home using the scheme.
The most basic issue seems to be supply and demand: not enough new houses are being built. The British housing market is dramatically lop-sided; as while demand has grown, building has stalled, and is now at its lowest point since the 1920s.
Several other factors are exacerbating the housing crisis. London is a hotspot for international property investors, for whom the increase in house prices and rents are providing an enviable return on investment.
The increase in university numbers, and subsequently the amount of student accommodation required, particularly at the higher end of the market, is also contributing to the capital’s housing shortage. This is replicated across the country, as increases in the student population have not been matched by growth of student-specific housing, putting more pressure on residential housing supply.
Even when much-needed housing developments are proposed, they are hampered by post-1947 planning regulations. From industry leaders to homeless charities, experts blame these restrictive laws for country’s housing shortage, along with NIMBYism and difficulties putting in place the underlying infrastructure necessary for new housing.
If Cameron really wants to help first-time buyers and those squeezed by the housing shortage, rather than cutting ‘Help to Buy’ he needs to address the fact that, quite simply, Britain needs more homes.
This article is part of our Housing in Crisis series.