Countrywide Quarterly Housing Market Review - Q2 2014

Countrywide Group

Monday, June 30, 2014

Help to Buy is assisting the right homebuyers with 55% of purchasers coming from the private rented sector

· The Help to Buy scheme is proving exceedingly popular with a growing sector of the electorate – the renty-somethings looking to get on the housing ladder.

· The UK builds the third fewest new homes in Europe to accommodate new growth. Only expensive Switzerland and Luxembourg build less.

· A 24% year-on-year rise in market appraisals shows an increasing number of owners are thinking about selling and the number of properties on the market looks set to increase.

 Help to Buy in all the right places

55% of people who have bought a property using the Government backed Help to Buy scheme have moved from the private rented sector, according to findings in Countrywide plc’s latest Quarterly Market Review.

 Data from Countrywide plc shows that the income of the average Help to Buy purchaser moving from privately rented accommodation is £41,000, while a third (35%) of households renting earn less than £30,000. There has been a particular bias towards lower income renters in London and the South East, where 40% of renters using the scheme to buy their first home earn under £30,000 (see Appendix A).  Indeed less than 20% of Help to Buy backed purchases were in London and South East, proving that Help to Buy is not fuelling a property bubble as some have suggested.

 Help to Buy purchasers who previously lived with their family, account for 30% of those using the scheme, a significant proportion of all users of the Help to Buy scheme. They are typically first time buyers still living at home, unable to access the private rented sector due to the cost of rent, or are unwilling to do so due to a desire to save for a deposit more quickly. As a consequence, these people tend to be younger than average, earning 16% less than those living in the private rented sector. Half of these purchasers are single person households and this means that housing costs take up a larger proportion of their income. In the majority of cases, these are new households who were saving for a deposit while paying reduced or no rent.

 Help to Buy has provided a lifeline to many homeowners in parts of Northern England where falling house prices have eroded the equity they hold. For existing homeowners in parts of Northern England who bought in 2006 or 2007, Help to Buy has provided a lifeline after falling house prices have reduced the equity of many households, preventing them moving. In the North East, almost 30% of homes purchased through the scheme have been bought by existing home owners.

Commenting, Nigel Stockton, Group Financial Services Director said:

“The Help to Buy scheme is enabling a growing number of households to achieve their aspiration of homeownership at a time when the proportion of high loan to value values is historically low. Given that the scheme is funded by the Government, it is important that those using it would otherwise find it difficult to buy without assistance. This has almost exclusively been the case with the majority of purchasers coming from the private rented sector or the parental home.

 “As homeownership rates decline, particularly amongst younger age groups, Help to Buy increasingly represents the way many new households are able to get onto the housing ladder. Help to Buy remains an extremely popular policy among aspiring homeowners. While the use of the scheme by existing homeowners is perhaps less politically acceptable, they tend to be households with little or no existing equity in parts of the country where house prices remain below the levels at which they bought.”

Over the past decade UK house building has lagged behind its European neighbours

Taking into account population growth, the UK has consistently built among the fewest number of new homes in Europe both pre and post-recession. Between 2004 and 2013, the UK built the third fewest number of new homes, 1 for every 2.5 new people residing in the UK. Whilst the recession reduced the number of new homes built, it hasn’t changed the UK’s relative position in Europe. Between 2007 and 2013, UK house building fell by 35%, similar to the 32% falls seen across Europe.

 Over the past decade only Switzerland and Luxembourg built fewer new homes. Both countries have smaller but faster growing populations than the UK and they have the highest average house prices in Europe. A westward drift across Europe has contributed to the growing populations in many Western European countries, with 10 of the 12 countries which saw their populations fall over the last 10 years in Eastern Europe (see Appendix B and C).

 Central and Eastern European countries have been best at delivering larger numbers of homes over the past decade. While the 2008 downturn has had the effect of reducing supply with falls of typically 20%-35%, these are modest in comparison to much of Southern Europe. In 2007, Spain alone built more houses than the UK, Germany, Greece, Belgium, Portugal, Sweden and Denmark combined, but the recession proved this unsustainable and between 2007 and 2013 house building fell 83%. France on the other hand, with a similar population to the UK, has delivered an average of 375,000 homes annually over the last 10 years, the majority built by individuals.

Commenting Grenville Turner, Chief Executive, Countrywide plc said:

“The level of house building completed before the market downturn in 2008 has been used by some as a benchmark of the number of homes that should or could be built in the UK. However, the 2008 downturn in construction should not disguise the fact that the UK has failed to build the required number of new homes over a much longer period of time. A long term lack of house building has meant that the UK was amongst the least well prepared countries to deal with the fall in house building in 2008.

 “While comparisons are frequently made to the 1930s and 1960s when the UK was building 250,000 plus new homes annually, the reality is that Britain has changed significantly over the past 50 years. Local Authorities no longer deliver meaningful numbers of new homes and large house builders now deliver almost all of the homes built in the UK. At the same time, the planning system has grown in scale and complexity with almost continuous reform making little or no difference to the numbers of homes delivered. If we are serious about delivering the number of homes the UK needs, we should look to our European neighbours rather than to the 1960s for ways of doing it.”

Rise in market appraisals amid signs of stabilisation in demand

While the number of properties for sale across much of London and the South East remains down 10% year-on-year, there are increasing signs that this is changing. Recent rises in house prices are driving a raft of new sellers to the market. Countrywide plc carried out 24% more market appraisals in June 2014 compared to June 2013. In London, where a shortage of stock has been felt most strongly, the number of appraisals rose 14%. Market appraisals are a key indicator of future levels of stock and a rise in numbers is likely to result in more stock coming on to the market in the coming months.

Commenting Grenville Turner said:

“In a sign that the supply / demand imbalance is beginning to even out, the large increases in house prices in London and the South East are beginning to attract new sellers to the market. With more people thinking about selling, the number of properties available looks set to increase over the coming months. This will have a significant impact in parts of London where a fall in properties for sale over the past nine months has put considerable upward pressure on house prices. If this rise in appraisals translates into a larger number of available properties coming on to the market, increased choice for buyers will serve to alleviate some of the upward pressure on house prices.”


Appendix to the press release

Appendix A

Who’s using Help to Buy?

Help To Buy

Appendix B

Change in house building (2007 to 2013)

Appendix b


Appendix C

New persons per home built (2004 - 2013)

Appendix C


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