Ambition key to housing

This article is part of
Guide to key Budget announcements

Ambition key to housing

While the Chancellor’s speech last week covered topics ranging from internet service levies to public lavatory business rates relief, much of the important detail was tucked away in the Budget Red Book.

There, we saw four policies with particular pertinence for the residential market: the end of Help-to-Buy; greater freedom for local government to borrow for housebuilding; a stamp duty surcharge for international buyers; and proposals to make planning more flexible when converting retail properties to different uses.

In a move welcomed by housebuilders, there was clarity on the future of H2B. The government announced that it will be extended beyond the current end date of 2021, but with some important caveats.

From April 2021 until March 2023, a new H2B scheme will run. This new scheme will be restricted to first-time buyers, who currently take up 81 per cent of H2B loans.

The revamped H2B scheme will also be restricted to lower value properties in most markets. At present, buyers can use H2B on new homes worth up to £600,000 across England. Under the new scheme, regional caps will be set on the maximum property value.

These caps will be set at one and a half times the current regional average first-time buyer price, ranging from £600,000 in London to just £186,000 in the north east.

We have taken a look at the average value of homes purchased so far using H2B by region. In London and the south, the proposed caps have been set well above that average – so will continue to allow first-time buyers flexibility.

Key Points

  • There were four policies in the Budget with reference to housing.
  • H2B is going to end after 2023.
  • Other policies will attempt to increase the housing supply.

Caps vary between regions

However, in the Midlands and the north the caps lie much closer to the average H2B property value – and in the north east, the average value of home bought using the scheme already exceeds the cap.

These caps could have a profound impact on new housing delivery in regional markets. Regional caps are a blunt instrument, which ignore the substantial variety of housing markets within a region – Cambridge is very different from much lower value Huntingdon, for instance.

While the average home bought using H2B be may below the cap at a regional level, many districts have much higher values.

The difference between current H2B values and the proposed caps is very large in some markets. In Harrogate, Yorkshire, the gap is over £100,000, while in Cambridge it is over £22,000.

Under new rules, local authorities can borrow an additional £10bn to £15bn against the housing they own. We estimate this could help build an additional 15,000 new council homes a year. That is a substantial increase from council delivery today, which is around 2,000 homes per year.

The appetite from authorities in putting forward their recent bids for extra borrowing headroom in the existing system shows just how much ambition they have to build more affordable homes.