The many drawbacks for buyers using Help to Buy (as well as greedy developer rip-off prices)

” … One of the biggest drawbacks of Help to Buy is that if you choose to sell up, the Government will ask for its 40% stake back. But with house prices falling in inner cities, Kim says this isn’t necessary bad. “Upon selling the property, if it does make a loss then the Government will absorb 40% of the loss made,” she said.

“One of the biggest benefits is the number of companies now offering the scheme. There were plenty of options all over London.”

But she says, bear in mind that after five years you will have to start paying back the interest – and your current salary is taken into consideration for this.

The government loan is interest free for the first five years. After that the borrower is charged a fee of 1.75% of the loan’s value. That fee then increases every year at 1% above inflation.

“You also can’t sub-let a buy to let property” she adds.

“This means that everyone living in the building is an owner – minimising any risks of investors renting neighbouring flats to frequently changing tenants. But bear in mind, you will have to pay a ground fee.”

However, while being unable to sub-let means you’ll be able to build a community with local residents, if you choose to move out, the only option you have is to sell up.

This, she says, means she won’t be able to work abroad or travel in the near future, as she’d not be able to rent the property to pay off her mortgage in the meantime.

Speaking of the drawbacks, she added: “Any profit made upon selling the flat will be shared with the Government – you’ll keep 60% and pay back 40% of the total amount made from the sale.”

“The Help to Buy scheme has been a very beneficial for first time buyers who otherwise would not be able to get on the housing market. But due to the complex nature of the equity stake from the Government, buyers do need to go into this with their eyes open,” explained Richard Campo, manager at mortgage advisor Rose Capital Partners.

“We have seen eye watering ground rent and service charges to the degree where lenders were declining mortgage applications due to the prospect of high future rises and subsequent concerns on affordability on the mortgage.

“Even the introduction of leasehold houses was only stopped by developers when mortgage lenders refused to offer products for these properties.

“The loan offered on Help To Buy is set as a percentage rather than a fixed amount, meaning if a house price doubles the loan would stay fixed, less any capital repayments, while the government would double it’s share (20% outside London, up to 40% in London). As such, serious thought needs to be given on how to exit or refinance down the line. …”

“Help-to-buy scheme pushes housebuilder dividends to £2.3bn”

“Britain’s biggest housebuilders paid out £2.3bn in dividends in their most recent financial year, as the help-to-buy subsidy pumped up their profits and house prices.

The nine biggest housebuilders listed on the London Stock Exchange declared the dividend payouts in their last full financial years, according to an analysis by AJ Bell, an investment platform.

Help to buy, introduced in 2013 and recently extended until 2023 for first-time buyers, was one of the flagship policies of the coalition government. Former Conservative chancellor George Osborne hoped to boost home ownership among young people, as house price growth far outpaced wage growth.

However, many economists believe the scheme boosted house prices without making a significant impact on the supply of new houses, enabling a profits bonanza for Britain’s biggest housebuilders and their shareholders.

In 2012, the final full year before the help-to-buy scheme was introduced, the top nine firms – many of which had been battered by the financial crash – paid dividends of only £57.7m, according to AJ Bell. Dividends declared in the companies’ most recent financial year were about 39 times greater.

Since 2013 the nine housebuilders have paid out nearly £8bn in dividends, while City analysts forecast another £5.2bn in payouts in 2019 and 2020. Furthermore, shareholders have also enjoyed appreciation in housebuilders’ share prices, which have been sustained by the promise of further profits.

Persimmon, half of whose sales were part of help to buy, was responsible for 2018’s largest giveaway. Its shareholders collectively earned £732m in dividends in the year ending in December, after the company earned more than £1bn in profits.

Taylor Wimpey declared dividends of slightly less than £500m during the same period. Barratt Developments declared £435m in the year ending in June 2018. Bellway, Berkeley Group and Bovis all declared dividends of more than £120m in their last full financial year.

The large profits of housebuilders have attracted heavy criticism, amid a continued housing crisis and rising homelessness. Persimmon’s former chief executive, Jeff Fairburn, resigned in November following public fury over his £75m bonus, which had been scaled back from £110m after investor outrage. …”

Taylor Wimpey making nearly as much profit as Persimmon (£811 m)

“… The strong results came a day after rival Persimmon reported a £1.09bn profit for last year, the biggest ever made by a UK housebuilder. For every home sold, Persimmon made a profit of £66,265, compared with £53,073 at Taylor Wimpey.

Housebuilders have profited hugely over the past five years from the taxpayer funded help-to buy-scheme, which allows buyers to put down a deposit of as little as 5% on a new build home, while the government lends the buyer up to 20% of the value of the property (40% in London), interest free for the first five years.

More than a third of the homes sold by Taylor Wimpey last year were through the scheme, at 36%, although this was less than the 43% in 2017. The average price of a private home sold by the company was £302,000 – up 2% – while the overall average selling price, including social housing, was flat at £264,000.

Taylor Wimpey’s profits have trebled since the beginning of help-to-buy in 2013. It defended use of the scheme, noting that 77% of sales made through it were to first-time-buyers.

Greg Beales, campaign director at Shelter, said: “Taylor Wimpey joins Persimmon as the next developer making massive profits funded by taxpayer cash whilst doing very little to address the housing crisis in this country….”

“English councils accused of hiding scale of homelessness crisis”

“Councils have been accused of deliberately hiding the scale of the rough sleeping crisis in England by changing the way they compiled figures for the 2018 official count, the Guardian can reveal.

Official government statistics reported a 2% fall in rough sleeping in England in 2018 after seven consecutive years of rises when the figures were released last month. But critics have suggested the percentage decreased after several councils changed their counting method and does not reflect the reality on the streets.

The government has described the claims as “an insult” to the volunteers and charities who help compile the official figures. But back in 2015 the figures were also criticised as low-quality, untrustworthy and vulnerable to political manipulation by the UK Statistics Authority who threatened to remove their official status.

The rough sleeping statistics for England, based on a combination of estimates and spot counts on a single night in autumn, are intended to include everyone about to bed down or already bedded down on the street, in doorways, parks, tents and sheds but not hostels or shelters. …”

“Housing is creaking — and not just because of Brexit”

David Smith, economics editor The Sunday Times:

“… There are two other elephants in the room.

The first is affordability. Official figures show that the average house price in England and Wales is 7.8 times annual full-time average earnings. The ratio has continued to climb in recent years, even since the crisis.

Over the past 20 years, it has more than doubled in England — up 123% — and nearly done so in Wales — up 92%. Viewers in Scotland have their own figures, but it has also gone up substantially.

It is true, of course, that ultra-low interest rates affect the affordability calculation when it comes to monthly mortgage payments, making bigger mortgages more affordable, but high prices are still a mountain to climb when it comes to deposits.

Also, even though wage growth has picked up, at a little over 3%, it is not making much of a dent in the high house price/earnings ratio. Older readers will remember a time when you took out a mortgage you could barely afford, confident in the knowledge that salary rises would come to the rescue. Things are different now.

The other elephant is the Help to Buy scheme, beloved of my friends in the housebuilding industry, where it has been like manna from heaven. First-time buyers have been steered towards new housing by Help to Buy equity loans on up to 20% of a property’s value in most of the country and a hefty 40% in London.

This has had two effects. By tilting first-time buyers towards new-build homes, it has distorted patterns in the market for existing homes. Young people who used to buy older homes, including “doer-uppers”, now have a powerful incentive to buy new. Normal housing market chains are not having a chance to form.

The second effect has been to push up prices for new properties relative to existing homes. Again, this comes out clearly from the affordability data.

In the early 2010s, the house price/earnings ratios for new and existing homes were similar. Since then they have diverged significantly. The latest figures are that the ratio for new homes is 9.7 — the average new home costs nearly 10 times average earnings — compared with 7.6 for existing homes. First-time buyers are being pulled into higher-priced homes and, ultimately, more debt. …”

Source: Sunday Times (pay wall)

Another developer pleads poverty – can’t afford to build affordable housing (lol)!

Councillors said they were horrified they were being asked to ‘give away poor people’s right to a house’.

Last month, Teignbridge District Council’s planning committee approved a scheme that will see 10 new two and three-bed apartments built on the site of the Neilston Retirement Hotel in Woodway Road, but only if an affordable housing contribution of £86,431 was provided.

But an independent viability appraisal confirmed that a contribution that large would mean that the development would not be viable and that they would not be able to proceed.

The application went back before planners on Tuesday morning and they voted to accept the recommendation of the planning officer that an affordable housing contribution of £37,500 was requested.

Had the application been totally policy compliant in terms of a 25 per cent affordable homes or off-site contributions for Teignmouth, then developers would have been asked for a total liability of £172,863.

Cllr Alistair Dewhirst said: “I am horrified that we could just give away poor people’s right to a house and I couldn’t possibly support it. I don’t think what is there now is special but what they are proposing looks like Colditz to me.”

Cllr Jackie Hook added: “Last time we were content with the application and were happy to see these new apartments built and we compromised in favour of a contribution of one affordable unit.

“The applicant’s appraisal identifies a developer’s profit of £228,280, so we should ask for £50,000, not the £37,500, and they will hardly notice the difference.”

Cllr Dave Rollason added: “A £228,000 profit is a lot of money. The need for affordable housing is massive and it is unfair that we are taking money from the pockets who need it most and giving it to developers.”

She added: “You either have to accept the independent advice over viability, or refuse the application.”

Cllr Phil Bullivant said it would be very difficult to go against the professional advice given and he could not see the evidence to go against it.

Cllr Dennis Smith, chairman of the committee, added: “We asked for this report and now seem to want to just be ignoring what it says. The viability statement says that £37,500 is fair, so I don’t see how we can argue about it.”

The proposal of Cllr Hook to increase the contribution required to £50,000 was lost, and then councillors voted by 14 votes to three to approve the application with an affordable housing contribution of £37,500.

The scheme would see the demolition of the existing building and the construction of a three storey apartment building containing 10 new two and three-bed apartments, plus 18 car parking spaces and two double garages.

Councillors had previously been on a site visit and raised no objections to the principle of the application, with Cllr Charlie Dennis said that the building has deteriorated, is past its best and at present it is a ‘sad thing to see’.

“Housing developer forced to scrap ‘misleading’ ads targeting first-time buyers”

“One of Britain’s largest housing associations has been forced to scrap an advertising campaign that implied its shared ownership scheme was equivalent to home ownership.

The Advertising Standards Authority (ASA) ruled Notting Hill Genesis – which owns 55,000 properties in London and the south-east – misled consumers by comparing its scheme in contrast with renting.

A slogan on its ad said: “I own a two-bedroom apartment and pay less per month than my friends pay to rent a room in a flatshare.”

But the ads were promoting the group’s shared ownership scheme, where homeowners only technically own a slice of the property and pay rent to Notting Hill in respect of the rest. …”