Earlier today, Barratt Developments (LON:BDEV) released their final results for the year ended in June 2018. Sky reported that Barratt consider market conditions favourable and that the Help to Buy scheme continues to assist the vigorous consumer demand.
Listed on the FTSE 100, Barratt Developments made £835.5 million in profit (before tax). This is a 9.2% increase from 2017. Additionally, Barratt sold 17,579 homes in the year with an average selling price of £289,000. The report disregards fears of a slowdown in the property market.
Today, there are various schemes to assist property buyers in purchasing their first home. One of the most well known to first time buyers is the Help to Buy scheme.
In a video interview with Sky, the Chief Executive of housebuilder Redrow, John Tutte, said: “First time buyers have always wanted some assistance to get on the housing ladder. If you look at help to buy, 82% of Help to Buy users are first time buyers.
“When you look at its use it’s generally for people who have got incomes of around £50,000.”
A report by the HPF shows that 170,000 new homes have been purchased through the scheme between April 2013 and March 2018.
Interestingly, 2013-2017 saw the fastest increase in housing supply on record. The Help to Buy scheme is exclusive to new build homes. With this in mind, the demand for new properties has increased since 2013.
Fundamentally, the scheme provides equity loans to buyers so they can purchase newly built homes with only a 5% deposit.
However, the Evening Standard’s Home and Property has reported that the scheme has been criticised for artificially inflating house prices. It is said that the scheme is being used by wealthy buyers as it is not capped at an income level. As a result, Homelessness charity Shelter believes that the scheme has increased average home prices by £8,250.
Help to Buy has certainly been beneficial for housebuilders such as Barratt Developments, who have seen an increase in their profits. But, just how sustainable is the scheme? With wealthier households using the scheme to upgrade their property, Help to Buy is artificially inflating house prices.
The future of the Help to Buy scheme remains uncertain as it parallels the looming uncertainty over Brexit. Whilst housebuilder Redrow has been calling for the clarity over the scheme’s future, the government has not committed to the scheme later than March 2021.