This week five national plc house builder’s reported record profit rises as they cash in on the state sponsored Help to Buy feeding frenzy. According to recent figures from the DCLG , 89% of the Help to Buy loans have gone to first-time buyers since the scheme began in April 2013. With an apparently never ending stream of undiscerning, naive first timers flocking to builder’s sales offices, buying whatever is available, what incentive do house builders have to improve quality of the homes they build?
You also have to question why the government is currently advertising it’s Help to Buy scheme on national television, when the figures released by these major national builders during this week demonstrate that this advertising is totally unnecessary.
Greed is good and greed is back, as both builder CEOs and their shareholders receive payouts from the excessive profits generated from the government’s Help to Buy subsidy. New Home Blog saw this coming!
Builder’s report record profit increases – but not improving quality!
Here we go again: “Profitability, Cash generation, Completions, Average selling prices, Earnings per share, Land banking, Trading outlook” yada-yada! The only house builder to make any meaningful statement regarding a commitment to improving quality and customer service was Barratt, with reference to their consistent HBF “customer satisfaction” 5-Star rating and their record 102 NHBC quality awards in 2013.
“Dream of owning your own home but need a little help?” Not content with creating another housing bubble – Nationwide report house prices have risen 8.8% since January 2013 – HM government is now advertising its Help To Buy scheme on the television with a taxpayer-funded 30 second commercial. You can see it here!
Why? Surely people who cannot afford to buy their own home, should not be persuaded to buy by the government? It’s a bit like payday lending for home buyers. They know they cannot afford it but hey, the government is making it easy, so why not?
The advertisement says the scheme is for “People who can afford a mortgage, but not a big deposit” So it’s for people who cannot afford to save 5% – 10% of the purchase price – the very same people who will struggle to meet the monthly repayments when interest rates eventually go up. To buy the average UK home costing £176,500 a buyer(s) would need to be earning at least £42,000 based on a mortgage of four times earnings. Surely someone earning over £40,000 a year (£31,300 a year – £2,610 a month after tax and NI) should be able to save a sizeable deposit in a few years? After all, it is just a question of priorities.
A bubble housing market with fewer homes being sold? Could the reason be Stamp Duty? A report in The Times highlighted that in the 1980’s, around 12% of all houses changed ownership every year. Last year the figure was just 4%. There are thought to be several reasons for this. More people are buying for an investment rather than to live in the home. Older people are living longer, meaning fewer of their homes are coming onto the market. The higher price of homes is also preventing people from trading up to a larger home as their families grow, with the government controlling both supply, via planning rules and high taxes and demand, bubbling up prices with schemes and subsidies such as Help to Buy.
But the main reason why many are staying put is the huge rise of the cost of stamp duty. In the 1980’s, no stamp duty was payable on homes that sold for less than £30,000 and only 1% was payable on everything else. Today, you pay nothing on homes under £125,000, but the rates increase until you are paying 4% on a £500,000 home and 5% on £1million property and that is on the total price, not just the proportion above each threshold. It could get worse in the future if nothing is done.
In teh UK a house worth £100,000 in 1985 (£150,000 in 1995) would cost about £525,000 today. In 1995, the stamp duty payable would have been just £1,500. If prices had gone up by general inflation since then (a lot less than they have) you would pay £2,442 stamp duty in today’s money. But even at today’s prices, at 1% you would still be paying only £5,250. But to buy the same house now, the stamp duty payable is £21,000. No small wonder people are not moving as often as they used to!