After months of negotiations, seven housebuilders and three high street lenders this week confirmed they had signed up to NewBuy Guarantee, the latest government initiative designed to jumpstart the stalled housing market.
But the line-up reveals a significant drop-out of housebuilders. Some 25 had agreed in principle to participate in the scheme. One notable absentee is Tony Pidgley’s Berkeley Group.
However, the Home Builders Federation claims that 130 builders have so far registered their interest in the scheme.
Fears that NewBuy would be unattractive to potential buyers due to lenders charging rates of 5% and over do seem to have been allayed for some. CALA, which says it plans to sign up to NewBuy following its launch, and Barratt, which has already signed up, welcomed the rates.
Adrian MacDiarmid, head of mortgage lender relations at Barratt, says: “For a 95% mortgage, these rates are very competitive. Hopefully, we’ve got some more lenders to come into the market to promote competition in that space.”
Ray Boulger, of mortgage broker John Charcol, says that compared with the shared equity products currently on the market, the NewBuy scheme should be very appealing to housebuilders.
Significant attraction
“NewBuy is less capital intensive than FirstBuy and HomeBuy Direct, which will be a significant attraction,” he says. “It will cost housebuilders less in cashflow and, of course, open the market to a wider number of buyers; this can only be good.”
Ken Whitaker, managing director of Seddon Homes, adds: “The flexible nature of the scheme, and the way it can be accessed across a range of sites, types of homes and sizes of builder, will maximise its impact and generate new activity across the country.”
However, Alastair Stewart, analyst at Collins Stewart, believes NewBuy will still “fall well short” of providing the 100,000 homes that the government has targeted. “Housebuilders have said again and again that they will prioritise price over volume,” he says. “They don’t want to build or sell more. They want to sell more expensively.”
Jon Neale, residential research director at Jones Lang LaSalle, adds: “Many developers have moved towards developing larger, family-sized houses on recently acquired sites, and that remains their business plan and the basis for the high levels of profit recently reported.”
There are also fears that NewBuy may not actually boost volumes in the first-time buyers’ market and will instead merely replace the shared equity products.
Peel Hunt analyst Robin Hardy says: “The risk is that the scheme does extend out to and facilitate 50,000 transactions, but these 50,000 transactions would have happened and the new homes would have been built anyway.”
“The financial crisis and the market downturn have been most damaging to smaller developers,” warns Neale. “They still remain the major source of new housing, however, and it is vital that they also benefit from schemes such as this.”
WHAT IS THE NEWBUY GUARANTEE?
NewBuy Guarantee aims to enable 100,000 prospective and existing homeowners to buy a newly built home valued up to £500,000 with a 5% deposit. The housebuilder will deposit 3.5% of the property value in an indemnity fund and the government will provide a guarantee for 5.5% of the property value.
Akelius, Sweden’s largest private housing company, has appointed CBRE to create one of the UK’s largest rental portfolios. It plans to invest £2bn. Interview with Lars Lindfors, managing director UK, Akelius
What is your strategy?
We plan to buy residential properties with good cash flow in London and the South East for the long term. We are looking for a 4.5-5% initial net yield. Our intention is to take the company up to 10,000 flats in five years in the UK. We will upgrade properties to a very good standard – called Akelius Living – and have already started to fully upgrade the properties we have bought.
How are you funding the expansion?
We are beginning by using our own funds. We think it is important to show the market that we have a strong financial capacity and can buy without the help of the banks. We have done that in the first three deals. Later on, we will discuss with the banks the opportunity to acquire some further funding.
Why are you expanding in the UK?
Regulation in the UK market is much freer than in Sweden. We also see a window of opportunity where people start to move from buying properties to renting because they are finding it more difficult to obtain mortgages. We will try to show that our product is valuable and an easy way of living. We strongly believe in the long-term market and in the UK economy. For the moment, it may be a little knocked down, but this is temporary and it will come back. We also do not want to be too big in Sweden, Germany or the UK but to spread the risk a little between the countries.
Do you have more deals in the pipeline?
We have a couple of good options in the centre of London and also further out. We have around 700 units in the UK and, if possible, I’d like to go up to 1,000 this year.
Which vendors are you approaching?
My idea was to find some of the big companies. The tricky part is to find small block owners where we can also be a good buyer. In Sweden, we have bought a lot of properties from the municipalities. That could be a big possibility here in the UK.
What is your outlook for the UK residential market?
There will be a more conservative capital growth of between 2% and 5%, depending on location, over the next five years. I also think the market will go more and more from owner-occupied to renting.
Why did you start a career in property?
I started as a banker in the 1980s. During the financial crisis in the early 1990s, I was employed at Mandamus, the real estate company where Swedbank put its bad property debts. When Akelius bought Mandamus in 2003, I moved over as well and became regional manager for two regions in Sweden.
What career would you have pursued had you not gone into property?
I would probably have stayed in banking. The atmosphere of working in the banking sector and real estate is very exciting. You create something for society and you do something that you can see.
How would you describe yourself?
I like to explore, I’m extremely stubborn and, if I put up a goal, I go for it. I’m also determined.
Resi rhetoric
Alastair Stewart, analyst, Collins Stewart
“We believe the [housing shortage] projection may well be bunkum. Far from facing a ‘mounting shortage’, the UK’s housing stock has gone up by almost twice the rate of population growth on average since 1991.”
Richard Donnell, director of research, Hometrack
“The challenge facing developers in E15 lies in increasing values, and for investors, interest lies in the timeframe this will take to happen. The new supply of housing after the Olympics in the E20 area will need to find its level within the profile of pricing across London.”
Paul Smee, director general, Council of Mortgage Lenders
“The year-on-year rise in house purchase lending suggests that lending levels are generally rising, although we expect the trajectory this year to be bumpy, not smooth.”
Liam Bailey, head of residential research, Knight Frank
“The strongest part of prime London remains the lower price ranges, with average rents in the £500-£1,500 per week bracket down by only 0.1% in the three months to February, compared to a decline of 0.9% in the £1,500-plus per week bracket.”
