The UK house building market is very slowly dragging itself out of the recession. It has been an incredibly difficult time for the property game and there is no doubt that the British house-building industry is in a crisis. Demand for homes is at an all time high, while the number of new homes being built is less than half the number required. With a staggering level of demand and such a low level of supply, it means that the price of each home is over-inflated and quite often unaffordable for most people who want to take their first step onto the property ladder. Combine all of this with the fact that funding is a major stumbling block to any home purchase.
With so much pressure on ever increasing living costs people are struggling to save any money to raise a deposit and lending from the banks to obtain a mortgage is tougher than ever. We have, therefore, got ourselves in a position where we are stuck. We need more homes to be built in order to meet the demand and reduce the average UK house price, but house builders are never going to build homes that they can’t sell if people cannot raise a deposit or get a mortgage.
For decades we have been failing to build the number of homes we need. The government itself says we need to build nearly 300,000 new homes each year to meet the current demand, but we’ve never been remotely close to that figure. In 2008 the number of homes we started building in the UK was the lowest peacetime level since 1924. In 2010 we completed only 102,830 homes, that’s a third of what we need. We built more homes each year in the final decade of Queen Victoria’s reign when the population was half the size. Incredible!
Building more affordable homes is the key. If we build more low-cost homes then obviously it is easier for people to obtain lower levels of funding in order to purchase them. Although the ‘Right to Buy’ scheme, brought in by Margaret Thatcher in the late 1970s, enabled people to buy their council houses and it made home ownership affordable, because we haven’t built enough council houses to replace the ones that have been sold off, over 1.5 million council homes have been taken out of the system since 1979. This has put even more pressure on the system. What a mess!
The government, rather belatedly, is now putting schemes in place to turn the new-build house building industry around. They have recently announced the ‘Help to Buy’ scheme where first-time buyers and home movers can apply for an equity loan to purchase a new-build home up to the value of £600,000. Basically the government will give you a loan for up to 20% of the price of the home. You need to contribute at least 5% of the property price as a deposit, so this means if you are granted the 20% loan from the government then you only need a 75% mortgage from the bank.
You won’t be charged any loan fees for the first five years of owning your home. In the 6th year, you’ll be charged a fee of 1.75% of the loan’s value. After this, the fee will increase every year. The increase is worked out by using the Retail Prices Index plus 1%. The idea is that the Help to Buy scheme will give low cost funding and reduce your financial commitment with the banks. The scheme was only launched earlier this year but it is already having a positive effect on the market.
Buying a new-build property off-plan also has a number of benefits. You can push for a really good purchase price as developers are keen to get a guaranteed sale in the bag before they start building and they offer many incentives, such as paying your stamp duty or even furnishing the home for you. It is a competitive market out there so the developers are keen to get your money. Buying off-plan also means that in a rising property market, the home you buy now may have gone up in price by the time it is finished. The downside is that if there was another unexpected property crash the house may be worth less than you bought it for. Not good.
Funding can also be tricky when buying off-plan. Banks normally only like to lend on completed homes so you may need to pay a 10-15% deposit from your savings before being able to raise your mortgage when the property is built and habitable. You also run the risk of actually not knowing when the home will be completed. The developer may tell you the home will be finished in 12 months, but if it takes longer it may cause personal complications about where you are going to live.
The property market is very slowly recovering. It is a good time to buy, and certainly it’s a good time to buy off-plan, as there are attractive deals to be had, but don’t over stretch yourself or take unnecessary risks. It’s not worth the stress.
For more tips and advice from George, check out his website at www.georgeclarke.com
Look out for George’s new book ‘George Clarke’s Amazing Spaces’, £20, published by?Quadrille, on sale from 4th October.