May's Help to Buy extension pledge lifts housebuilders

Shares in housebuilding companies were lifted on Monday after Theresa May said the government will plough a further £10bn into extending the Help to Buy scheme.

An extension to the scheme, which was launched by former Chancellor George Osborne to attempt to stimulate more housebuilding but has instead been found to increase demand and house prices, will be announced as part of the Budget on 22 November, the Prime Minister said on the opening day of the Conservative party conference, though without explaining the planned source of the funds.

The Help to Buy scheme provides government loans to enable people to buy a house with as little as a 5% deposit, with the government reclaiming its cash when the property is sold.

This £10m of additional funding is estimated to support the purchase of 135,000 homes and should underpin new build housing demand by a further four years through to either 2022 or 2025, according to different sector analysts.

An extension of the scheme, however, came in for criticism from other City analysts and property experts, and followed research this year that calculated 57% of those who signed up to the scheme could have afforded to buy without access to the scheme.

Broker N+1Singer noted that there had been comments around a possible cut to the upper value limit of £600,000 and maybe halving it.

A Help to Buy extension "will do nothing to increase the supply of housing", said free market thinktank the Adam Smith Institute, and will only serve to increase house prices.

Robin Hardy, an analyst at Shore Capital, said: "We strongly believe that this scheme is a major market distortion and how it really only benefits the house builders in allowing them to boost their profits and cash flows while failing to deliver the increase in housing output that the politicians want and the country needs.

"This is a demand stimulus that is naturally inflationary when what the country needs and what potential home owners want is supply stimulus."

If £10bn is added to the unutilised funds of £5.4bn at June 2017 at the £2.5bn-a-year current rate of use, the money will run out in the second quarter of 2022, Hardy said, or sooner if the rate of use continues to expand.

He also suggested that, with little substance over how the extension is being funded, it is possible that the government may be "raking over old coals and that there is not actually much new money being committed", though he felt it will almost certainly be taken positively by the sector.

Indeed it was, with Barratt Developments, Persimmon, Taylor Wimpey, Berkeley, Bovis, McCarthy & Stone, Bellway, Redrow and Crest Nicholson all racking up gains on Monday morning.

However, Chris Millington at Numis said with £2.1 of equity loans granted in 2016 and £1.36bn in the first half of 2017, the current run-rate suggested the additional funds "should extend the scheme by a further 4/5 years through to circa 2025".

Since the Help to Buy scheme was launched in April 2013 and June 2017, it has been used to aid the purchase of 134,558 new homes, with equity loans amounting to £6.7bn.

The mean purchase price of properties bought under the scheme was £240,530, and the mean equity loan was £49,963. Roughly 81% of the loans have been used by first-time-buyers.