Phil Hooper, CEO of Close Brothers Property Finance, looks at the positive impact that the Your First Home scheme could have for buyers and the housebuilding industry.
The Budget has finally given first-time buyers and, by extension, the housebuilding industry, much-needed support by setting out the terms of Your First Home. The £4.7billion scheme offers 20% equity loans on new-build homes, with deposits from 2.5% to 15%. The government expects it to help around 70,000 households onto the ladder and support the delivery of an estimated 20,000 new homes. It’s the shot in the arm that the market has been waiting for.
Since Help to Buy closed in March 2023, first-time buyers have gone without an equity loan scheme for the longest stretch in decades, while higher interest rates have eroded their purchasing power. That has left a large pool of would-be buyers stuck on the sidelines, and housebuilders, particularly SMEs, hit hard by the slowdown in sales. Help to Buy had its critics, but in my view, few measures have done more to support new build supply. MHCLG’s own impact assessment found Help to Buy delivered ‘very high value for money’, and Homes England figures show that the Exchequer has made a return of £1.24billion on repaid equity loans.
Your First Home will put homeownership back within reach of a new generation of first-time buyers. It will also give the new build market the lift it badly needs. It’s good to see the government getting the scheme underway quickly, with pre-registration set to open by the end of December, applications from February and the first loans issued from April. The fact that it is being rolled out with urgency suggests the government is taking seriously the impact slower sales have had on the market.
Sales: The significant role in recycling capital to build the pipeline
Since coming to power, the government has focused on the supply side. It’s encouraging that it has now also listened to the industry’s call for action on demand, just as viability pressures were intensifying. We’ve been calling for demand-side support that works for SMEs as well as the largest builders, so it’s great to see that message land. Unlike volume builders, who are better capitalised and can ride out quieter periods in the market, SMEs typically have their capital tied up in one or two sites. Until those homes sell, they can’t release that equity and move on to the next scheme.
As a lender, we see first-hand how much timing matters. We underwrite not just the build but the exit. The projected rate of sales shapes everything from how a site is appraised to how quickly a housebuilder can recycle equity into the next parcel of land.
When completed homes go months without a buyer, the housebuilder can’t repay the development finance loan and the whole pipeline stalls. Weak demand, compounded by the lack of support for first-time buyers, has undoubtedly been a major driver behind planning approvals for new homes falling to 45,315 in Q2 this year, the lowest quarterly figure since 2012.
Your First Home should hopefully change that equation. More first-time buyers mean faster new build sales, equity released sooner and greater confidence for lenders backing new schemes. We are already hearing from housebuilders who are revisiting land opportunities that had been put on the back burner. That is the virtuous circle the market needs: more buyers, more sales, more sites and, ultimately, more homes.
Getting the detail right for SMEs
In our most recent State of Play report, which we compile with the Home Builders Federation and VELUX, SMEs say that if barriers to building are removed, they could increase delivery by 56%, on average, boosting the supply of new homes by 100,000 a year.
Housebuilder participation fees are set on a sliding scale from 1% to 4% of the sale price, with the lowest rate applying to the first 100 homes sold annually by a housebuilder through the scheme. That should go some way towards keeping Your First Home accessible to the smaller housebuilders in greatest need of demand-side support. Timing is just as important. As the fee is based on the sale price, it looks set to be paid on completion, rather than upfront when cashflow is at its tightest. That needs confirming before housebuilder registrations open in December, along with the participation terms and the full list of local price caps.
Most SMEs don’t have the legal and compliance teams that volume builders can rely on, so signing up needs to be straightforward. The government has taken a sensible approach in setting price caps in line with local authority median prices and income gaps that should be sufficiently generous to open the scheme up to dual-income households, although they may not stretch as far in London. Hopefully lessons will be applied from the soon-to-be scrapped Lifetime ISA, whose £450,000 price cap remained unchanged for almost a decade, leaving it largely unfit for purpose in London and the South East. If Your First Home is to avoid a similar fate, the government needs to keep caps under review as prices move.
The government has made the right decision in bringing back an equity loan scheme, and the industry is ready to respond. Buyers are waiting, housebuilders are eyeing their next sites, and lenders like us stand ready to fund them. Get those finer details right, so the scheme is proportionate and accessible to housebuilders of all sizes, and Your First Home could do more for housing delivery than any measure since Help to Buy.
