Can the new scheme build a win-win situation for both buyers and builders?
Chancellor John Healey’s Budget is set to offer a boost for first-time buyers with further details on the government’s Your First Home scheme – but the program’s success could ultimately come down to how much of the bill lands on developers.
The measure is expected to let eligible first-time buyers purchase a newbuild home with a deposit as low as 2.5%, backed by a government equity loan of up to 20%. Developers who take part will be expected to contribute to its cost, though no figure has been published.
For mortgage brokers, that unknown matters, because it may decide how many homes qualify, what they cost and how many clients can complete.
Andy Morrison, director of UK Property Development, says the Budget needs to get the balance right.
"While the proposed first-time buyer scheme may help stimulate demand for newbuild homes, the real test will be whether it improves the commercial viability of bringing additional housing stock to market," he said.
The buyer's ledger
On the buyers’ side, the Your First Home scheme will cut the deposit needed to get on the ladder. It applies to new-build homes in England only, and income and price caps are due to be set at the Budget.
Verona Frankish, chief executive of Yopa, welcomed this help for first-time buyers but also cautioned that much more work is needed to meaningfully improve the affordability picture.
"Years of initiatives designed to stimulate demand have helped push house prices further beyond the reach of aspiring homeowners," she said.
"A smaller deposit requirement may provide a welcome short-term boost, but unless we're building enough suitable and affordable homes, we risk inflating prices further and leaving buyers financially stretched, with the added danger of negative equity should market conditions change."
Developer concerns must be addressed, says Morrison
On the developer side, the scheme asks builders to share the cost while they already carry heavy burdens. Among those existing challenges, according to Morrison: "Developers are already balancing substantial upfront costs, planning delays, infrastructure requirements and rising construction expenses,” he said.
“If they are also expected to contribute towards the cost of government-backed buyer incentives, the Chancellor must ensure this doesn't create another financial obstacle to delivery."
A policy with big implications for the housing outlook
The scheme’s success or failure could come down to how much of the burden falls on builders and developers to make it work.
Mortgage and housing industry members are likely to be keeping a close eye on several factors: how many homes qualify, what they cost, how lenders value them and how many clients complete.
A higher contribution for builders could result in fewer homes being built, higher prices to recover the cost, or developers opting to stay out of the scheme entirely.
Experts have flagged that builders may decide the scheme is too costly to join, with smaller firms the most exposed. That would leave fewer eligible homes and fewer places to put first-time buyers.
Builders that do join may also decide to recoup costs by cutting the incentives they usually offer, such as deposit contributions.
On the other hand, if the required contribution for developers is lower, that could convince more builders to join the scheme – potentially leading to more housing stock and higher first-time buyer demand.
Morrison said the Budget should ultimately do more than just help buyers. "Wednesday's Budget needs to focus just as much on unlocking viable development land, improving the planning process and reducing the cost of bringing sites forward as it does on helping buyers purchase the finished product,” he said. “Without that balance, stimulating demand alone will do little to address the underlying shortage of homes."
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