The 2013 Budget is hoped to boost the housing market and construction industry. Yesterday Chancellor George Osborne announced new plans to help people buy their first homes homes with the Help To Buy Scheme and an extension of the previous NewBuy Guarantee scheme to include older houses as well as new-builds.
For three years from the start of 2014 the government will support £130bn of first time buyer mortgages by guaranteeing 15% of the loan leaving borrowers at risk of losing only their 5% deposit and lenders liable for only 80% of the purchase price.
Lenders taking part should therefore be happier to accept smaller deposits as security for loans, but it is still a relatively small proportion of the total mortgage market worth £1.2 trillion, according to the Council of Mortgage Lenders (CML).
The theory is that giving more people the ability to purchase a home will increase demand for property resulting in an increase in price and promoting an increase in supply (more construction) to fill the demand. It is very simple Supply and Demand economics that will work, but it is the amount that it works by that is the question.
Of all the sectors that contribute to the UK’s GDP it is the construction industry that has been most badly affected helping to drag us back into a double dip recession and a stagnating economy, so it makes sense for the government to try and stimulate demand for construction.
The Housing Market is also a very important barometer for confidence in the economy and when people feel confident they spend money and invest in business which includes Landlords.
Any kind of confidence boost in the housing market has got to be a good thing for Landlords and property investors in the long run. If the value of property strengthens then lenders will feel more confident to lend on better rates and Loan to Values. Landlords may eventually be able to remortgage again after the death of the remortgage market for the last four years. We will no longer be stuck locked into existing lenders and at the mercy of their desire to either get rid of Buy to Let mortgages or fleece Landlords for greater profit margins as the Bank of Ireland are trying to do.
A competitive Buy to Let market is essential for the long term planning of Landlords taking control back from the banks and into the hands of investors once again.
However we cannot get too excited as it all depends on the degree by which government support works that is all important, and with the revision of GDP growth forecasts halved it would indicate that there is a long road to recovery to travel yet.