Can Developers Afford a Compulsory 20% Discount on New Build Sales?
Boris Johnson’s new government is racing to implement new policies across all areas of the economy as it also races toward Brexit at the end of December. UK real estate has not been ignored. But is this good news for property developers?
A Revamped Shared Ownership Scheme
Announcing a range of new measures on 28th
August 2019, Housing Secretary Robert Jenrick said that:
“My mission is to increase the number of homes that are being delivered and to get more young people and families onto the housing ladder, particularly those on lower incomes. That’s why I am announcing radical changes to shared ownership so we can make it simpler and easier for tens of thousands trying to buy their own home.
Currently, the shared ownership scheme enables a buyer to purchase a stake in a home and pay subsidised rent on the remainder. The occupier can then purchase the remaining share in 10% increments. This means that the occupier must save £45,000 on a £450,000 property to increase the share they own.
The Housing Secretary announced plans to reduce the amount an occupier could purchase to 1%. The government believes that this will help occupiers increase its stake more quickly. He is probably right in this assumption; it is easier to save 1% of a property’s value than 10%. However, criticism of the plans (which are due to undergo a period of consultation) has already been voiced.
For example, Centrepoint (the charity for the homeless) said that changes would “have little impact on the most vulnerable people in need of housing
”. It believes that the government should focus on increasing the supply of social housing rather than homeownership.
Similarly, Shelter poured cold water on the plans. Its CEO, Polly Neate said there are 800,000 renters in the private rented sector who cannot afford to save as little as £10 per week. She, too, called for emphasis to be directed toward providing “genuinely affordable social homes
So could the government’s plan work? Perhaps, but it may also be cumbersome, expensive to administer, and disadvantageous to housing associations that will be the landlords.
35-Year Mortgages for Help-To-Buy Scheme Buyers
The Housing Minister also announced mortgage moves to close a loophole that currently caps the length of a mortgage for help-to-buy purchasers to 25 years. It will now be easier for these buyers to meet mortgage payments, as monthly mortgage repayments will be cheaper.
The Silent Announcement
One announcement that wasn’t made by Robert Jenrick was a proposal to offer a 20% reduction on the cost of a new home to first-time buyers. However, a spokesperson did confirm that the proposal was being given serious consideration by the Ministry of Housing, Communities and Local Government. While further details will be given “in due course
”, the scheme would give first-time buyers a 20% discount on a new home in the area in which they grew up.
Writing in The Times on 28th
August, Jenrick said, “I want young people… to be able to stay in their communities. It’s not right that people on low incomes risk being forced out.
Here’s where the problem arises for property developers. The cost of the 20% discount would be borne by the developer.
Is the Government Attacking Property Developers?
For a government that wishes to increase the pace of housebuilding, the 20% discount policy seems rather strange. Which is probably why it has been slipped out unofficially, as a policy being considered. Is the government shifting its focus from attacking property investors to attacking property developers?
Whatever the outcome, property developers operating in UK real estate need to access investment pools. They must connect with buyers who understand the property market more than the government appears to. That’s where we come in.
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