The New Build market

27/07/2020

‘More questions than answers’ seems to be a phrase I’ve heard a lot recently, and I apologise in advance for not having many answers, but I wanted to put a ‘glass half full’ tint on my latest views on the New Build market.

So, what do we know?
Help to Buy (HTB) as we know it is ending 31 March 2021 for legal completion (reservations 31 Dec 2020), with no (current) indication that these dates will be extended. That said, HTB will continue for First Time Buyers until 31 March 2023, and they’ve accounted for over 80% of the transactions of the current scheme and arguably the most in need going forward – especially in terms of the requirement for a 5% deposit.

Challenges will be faced on a regional basis due to the price caps, my colleague Alex Beavis commented on this a while back.

It’s a tough gig for the housebuilders whose strategy will have to diversify in preparation for this, i.e. build smaller properties on a square footage basis if there will be ongoing affordability and deposit challenges for consumers, notwithstanding throwing a global pandemic into the mix where consumers will potentially want more green space on their doorstep. No doubt they’ll act resiliently to the challenges faced, but lenders will need to work closely with the industry in order to support the supply and demand chain from breaking with more innovation and agility likely required.

And for the future…
The end of HTB as we currently know it does leave a void, but now more than ever we need the gap to be filled by a multitude of options. Here’s my latest view of each;

  • 95% LTV - The current economic environment will kick this down the road for many, certainly into next year whilst lenders get their house in order on their corporate base case and stressed economic scenarios in terms of capital and provision against HPI.
  • Private equity / Mortgage Indemnity Guarantee - This will need to work for lenders in terms of the risk versus reward scenario, but if third parties are willing to take the risk north of 80/85% LTV then this could have an appeal to lenders from a margin perspective in what has been a very competitive market over recent years.
  • Shared ownership - This seems a strong contender to climb up the rankings to fill a gap for HTB in terms of affordability and deposit, for those not eligible for HTB post March 2021.
  • Joint Borrower Sole Proprietor -The Bank Of Mum and Dad (BOMAD) is now the 11th largest mortgage lender in the UK, according to a 2019 report from Legal & General and the Centre for Economics and Business Research. This seems a currently under-utilised option and more education and confidence is needed in the market.

The mortgage industry is very resilient with lots of great people passionate about driving it forward – this is now arguably more important than ever. One thing I want to try and bring together is a New Build lender forum. Historically we have all been brought together by distributors or industry events, but I do believe in addition to the great work they achieve there is an opportunity to work more in collaboration on certain aspects and challenges faced, e.g. MMC, Desktop Valuations, cladding to name just a few. This is something I would be keen to take forward and would like to hear from other lenders if they wanted to work with me on this basis. Please feel free to contact me via LinkedIn: Simon Tipton, if this is something you’d be interested in.

Simon Tipton
Intermediary Development / Strategy Manager

All information correct at time of publish.

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