Home Government policy First Home scheme could cost British housebuilders £2bn a year

First Home scheme could cost British housebuilders £2bn a year

The latest Government initiative, the First Home Scheme, could cost British housebuilders £2bn a year. 

On the 7th of February 2020, the Government announced plans to cut the cost of a proportion of new build homes by 30% for first-time buyers in order to ‘turn the dial on affordability’. 

It will be aimed primarily at military veterans and other ‘key workers’ such as nurses, police officers, teachers and firefighters, although thousands of buyers in other professions will also benefit. 

The Government is yet to reveal just what proportion of new builds will fall within the scheme but has suggested tens of thousands of properties will qualify, having previously stated it could be some 19,000 homes by the middle of this year. 

With this in mind, we’ve looked at the cost to British housebuilders based on new build sales over the last 12 months which totalled 117,256 across Great Britain according to the Land Registry. 

Based on a very conservative estimate that 20% of these sales could soon fall under the First Home scheme annually, let alone over a six-month window, this would see some 23,451 homes each year selling at a 30% discount. 

On the current British new build house price of £295,295, the average buyer would save £88,588 but when you multiply this saving by the 23,451 homes that could qualify, that’s a loss of £2,077,504,793 across the new build sector on an annual basis. 

Developers in London would stand to lose the most with £356.5m wiped off in new build sales values, with Edinburgh (£23m), Birmingham (£16.6m), Leeds (£13.7m) and Liverpool (£13.4m) also amongst the largest declines. 

A positive announcement on the face of it and one that has been made with the good intentions of addressing affordability for the nation’s first-time buyers. However, as is often the case, the devil will be very much in the detail and it is still relatively unclear as to how this will impact the existing parameters of the new build sector when it comes to social housing commitments and site constraints. 

As a result, this news will understandably be met with some initial concern from the nation’s housebuilders and a wider degree of sceptisim from the industry as a whole for a few reasons. 

We are currently building more new homes than we have done in the last 30 years but at the same time, the number of first-time buyers, in particular, has increased dramatically. Previous schemes like Help to Buy have fuelled this increase in demand and ironically, the result has been an increase in house prices for the very people the Government is trying to reduce affordability issues for. 

Therefore we must continue to deliver the stock required but to force housebuilders to do so on the Government’s terms could well backfire and see the number of homes being delivered decline. We’ve seen a similar trend within the rental space whereby landlords have opted to leave the sector due to the recent ban on tenant fees, reducing stock and causing rents to increase. If this latest initiative does impact the supply-demand balance negatively, house prices will increase at a greater rate and it could arguably do more harm than good in the long run. 

There is also the suggestion that this is more of a political move in order to entice aspirational homeowners to side with the current Government come the next election. At the same time replacing a social housing allocation that would see those traditionally voting elsewhere become more vulnerable due to a lack of suitable social housing options.”

Info on data tables
Average new build house prices and transactions in the last 12 months (Oct 18-Sept 19) sourced from the Land Registry New Build House Price Index
First Home Discount per sale based on 30% of average new build house price
Total annual new build value sold = average new build house price x annual new build transactions. Total value of 20% sold = average new build house price x 20% of annual new build transactions
Housebuilder loss based on First Home discount x by 20% of total annual transactions
Impact of First Home discounts nationally
Location Average New Build House Price First Home Discount Annual New Build Sales Volume Total Annual Sold Value 20% of Sales Total value of 20% sold (£) Housebuilder Loss (30% of 20% Sold)
England £304,946 £91,484 101406 £30,923,305,934 20281 £6,184,661,187 £1,855,398,356
Wales £215,560 £64,668 3575 £770,625,222 715 £154,125,044 £46,237,513
Scotland £208,132 £62,439 11768 £2,449,292,577 2354 £489,858,515 £146,957,555
Great Britain £295,295 £88,588 117256 £34,625,079,880 23451 £6,925,015,976 £2,077,504,793
Impact of First Home discounts regionally
Location Average New Build House Price First Home Discount Annual New Build Sales Volume Total Annual Sold Value 20% of Sales Total value of 20% sold (£) Housebuilder Loss (30% of 20% Sold)
East Midlands £260,856 £78,257 10179 £2,655,256,557 2036 £531,051,311 £159,315,393
East of England £362,408 £108,722 12523 £4,538,430,983 2505 £907,686,197 £272,305,859
London £486,301 £145,890 12217 £5,941,144,604 2443 £1,188,228,921 £356,468,676
North East £186,946 £56,084 5750 £1,074,939,318 1150 £214,987,864 £64,496,359
North West £220,498 £66,149 13006 £2,867,796,077 2601 £573,559,215 £172,067,765
South East £375,693 £112,708 17281 £6,492,356,680 3456 £1,298,471,336 £389,541,401
South West £301,730 £90,519 10729 £3,237,266,288 2146 £647,453,258 £194,235,977
West Midlands Region £267,394 £80,218 10415 £2,784,909,601 2083 £556,981,920 £167,094,576
Yorkshire and The Humber £205,877 £61,763 9306 £1,915,891,273 1861 £383,178,255 £114,953,476
Impact of First Home discounts by city
Location Average New Build House Price First Home Discount Annual New Build Sales Volume Total Annual Sold Value 20% of Sales Total value of 20% sold (£) Housebuilder Loss (30% of 20% Sold)
London £486,301 £145,890 12217 £5,941,144,604 2443 £1,188,228,921 £356,468,676
Edinburgh £300,209 £90,063 1285 £385,768,309 257 £77,153,662 £23,146,099
Birmingham £245,730 £73,719 1130 £277,674,370 226 £55,534,874 £16,660,462
Leeds £237,370 £71,211 964 £228,824,643 193 £45,764,929 £13,729,479
Liverpool £190,201 £57,060 1176 £223,676,527 235 £44,735,305 £13,420,592
Glasgow £178,053 £53,416 911 £162,206,177 182 £32,441,235 £9,732,371
Bristol £289,096 £86,729 514 £148,595,288 103 £29,719,058 £8,915,717
Aberdeen £251,876 £75,563 579 £145,836,141 116 £29,167,228 £8,750,168
Cardiff £254,957 £76,487 540 £137,676,892 108 £27,535,378 £8,260,614
Sheffield £186,009 £55,803 615 £114,395,638 123 £22,879,128 £6,863,738
Cambridge £577,604 £173,281 195 £112,632,748 39 £22,526,550 £6,757,965
Newcastle £230,780 £69,234 425 £98,081,622 85 £19,616,324 £5,884,897
Plymouth £221,135 £66,340 443 £97,962,706 89 £19,592,541 £5,877,762
Manchester £206,830 £62,049 461 £95,348,556 92 £19,069,711 £5,720,913
Newport £244,109 £73,233 256 £62,492,027 51 £12,498,405 £3,749,522
Nottingham £183,875 £55,163 305 £56,081,888 61 £11,216,378 £3,364,913
Leicester £241,017 £72,305 208 £50,131,516 42 £10,026,303 £3,007,891
Southampton £223,832 £67,150 141 £31,560,366 28 £6,312,073 £1,893,622
Bournemouth £220,330 £66,099 104 £22,914,316 21 £4,582,863 £1,374,859
Swansea £179,448 £53,834 119 £21,354,334 24 £4,270,867 £1,281,260
Oxford £347,484 £104,245 43 £14,941,826 9 £2,988,365 £896,510
Portsmouth £243,826 £73,148 54 £13,166,613 11 £2,633,323 £789,997

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