Figures* show that since Help to Buy was launched on 1 April, net lending to construction companies for building domestic property fell from £4.64billion (month to end March 2013) to £4.19billion in August (the most recent data period) – see graph below.
The first phase of the Help to Buy scheme was intended to boost the market by enabling buyers to purchase new homes from registered housebuilders with only a 5% deposit and a 20% government equity loan. The second phase allowing buyers to purchase any home of up to £600,000 with a 5% deposit came into force this October.
Comments Simon Ingram, Principal at EMW:
“With all the fuss surrounding the recovery of the housing market and the impact of “Help to Buy” in boosting demand, these figures are quite counter-intuitive to the current buoyant mood. It shows that the credit crunch for construction companies is far from over.”
The most likely explanation for this fall is banks’ reluctance to fund new lending to replace existing loans when they come to an end. Having played a key part in fuelling the last housing boom, lenders are being much more cautious about their exposure to the residential construction market, despite all the positive signs of growth. Fears that Help to Buy could cause another bubble may not be helping.”
EMW points out that the dramatic fall since April is part of a longer-term trend, which has seen net lending to construction companies for domestic building drop 42% since the start of 2011 (the earliest date for which data are available), down from £7.17billion in January of that year.
Adds Simon Ingram:
“Given that Help to Buy has been hailed such a success by the big housebuilders, it’s surprising that despite critics’ reservations, it hasn’t had more of an impact in reversing the decline in residential construction lending.”
This is probably a sign that while the major developers and construction companies in the industry have been benefitting, the smaller residential construction companies are being left out in the cold. Without access to finance they will find it increasingly difficult to compete.”
For example, Bovis Homes, Persimmon and Bellway are among the major housebuilders to have announced sharp increases in reservations since the start of the scheme.
*Source: the Bank of England
