Good and bad news from the Autumn Spending Review

So another week, another update from the Chancellor with the overall aim remaining to same, a small budget surplus by 2019/2020 which means continued fiscal tightening. The announcement of a significant increase in spending on housebuilding was very welcome in countering chronic shortages of housing supply. So tick – good news! The government’s proposed planning reforms should also have a positive effect in this area too. So let’s take a little look:

• There will be an additional £2bn per annum in the ‘Help to Buy’ scheme to fund 400,000 new domestic properties, aimed largely at first time buyers and renters. I must admit, “we are the builders” makes me cringe. I’ve said before the scheme to an extent is beneficial though there needs to be caution at a scheme that is creating a large demand and with such a limited supply means only one thing – price increases!
• Further changes to ‘Help to Buy’ to help Londoners, with an interest free loan of up to 40%, and a shared ownership scheme to deliver 135,000 all sounds good but seeing is believing if they actually deliver on this scale.
• A removal of red tape to allow the private sector to build more houses didn’t really give sufficient information as to whether this is good or bad – we want more support for SMEs in the sector, not making it easier for national builders to continue their dominance. By simply releasing public land for 160,000 homes and small builder loans could help the SME sector.
• The release of public sector land is always to be welcomed, and it is good to see this taking place. The homes that are brought forward on these sites must be serviced with sufficient infrastructure and will ideally have homes for sale and for rent, to ensure that they contribute to mixed, vibrant communities.
• The local authority planning department remains low on resource and this will continue to be a big obstacle for development – maybe the government should listen to what the private sector is saying about helping plug the funding gap.
• And if the above isn’t enough, you could soon be buying a house built on a former prison site!

For me though it was the big news for the green construction sector with the announcement that  the renewable heat incentive subsidy would be “reformed” to save £700m, while the energy company obligation will be replaced with a new scheme that will save £30 off the bills of energy customers.

A commitment for 400,000 new homes is very welcome – there is a demand so we need a supply, however it is vital that the construction industry as a whole continues to address skills shortages. There is a rapidly ageing workforce and therefore there needs to be a greater investment in skills and training

In conclusion the majority of changes are welcomed and there has been some good steps made to increase benefit housebuilding but it will take a long time to make up for the relatively low rates of housebuilding seen in the UK over the past two decades, so don’t think this will be enough to stem the rise in ‘generation rent’ over the next five years.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

 

Enjoy the weekend

Lee

House price growth of 17% - a retirement dream

I remember the date well which for me says something as I tend to need to write things down to remember them in detail. Many years ago today we bought our first house. A home of our own to build our life together.

 

A home can be many things too many people – a place to live, raise our children, a means of funding retirement and so forth. Hearing news that house prices are expected to rise by 17% on average across the UK over the next five years is always reassuring to hear for those funding retirement for example but there is the presence of mortgage rate rises which could impact on this growth and ultimately is the growth sustainable and needed?

 

 

Mortgage rates are apparently the gloom of the growth. A potential rate rise, if too quickly, will curtail house price growth. On the flip side, if rates remain low for too long, there is a risk that prices will rise too far, creating further affordability issues. There needs to be a gradual interest rise that curtails to an extent. A good move introduced last year was the stress testing for affordability which did cap the amount people were allow to borrow based on their income and has prevented runaway price growth but forecasted 17% growth raises a certain query whether the cap did anything at all.


Annual transaction levels, at just over 1.2m this year, are expected to reach 1.3m in 2020, far short of the pre-crunch norm of around 1.7m, as a lack of affordability slows demand.

In October 2015, house prices nationally increased by a modest 0.6% (well at least it was growth) with the annual price growth currently at 3.9% (according to Nationwide). The most interesting point is that the average house price has now exceeded the levels of 2007/8.

 

 

 

Over the past five months annual price growth has remained in a fairly narrow range between 3% and 4%, broadly consistent with earnings growth over the longer term. While this bodes well for a sustainable increase in housing market activity, much will depend on whether building activity can keep pace with increasing demand. And this is a big but!

 

So with house prices increasing and certainly more than income there is a big risk to the UK economy and hence the interest rate threat which could temper the growth to acceptable risk levels. Though in the meantime at least checking mortgage fees will be simpler following a new tariff created by the Council of Mortgage Lenders – standard terminology, consistent terminology across 85% of lenders and everything else legal you can think of.

 

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

 

Enjoy the weekend

Lee