School of Real Estate and Land Management The future of Real Estate Education

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1 The future of Real Estate Education Gloucestershire Help to Buy Scheme s assessment October 2014

2 The Royal Agricultural College (RAC), now the Royal Agricultural University (RAU), is the oldest agricultural college in the English speaking world and has been at the forefront of agricultural education since The University maintains strong industry links, creating an unrivalled reputation in terms of the networking opportunities available and the calibre of work placements offered to students. Students have gone on to enjoy success and make a significant contribution in a wide range of professions around the world. Visit the RAU webpage Visit RELM webpage

3 Help to Buy Scheme s assessment Gloucestershire Dr. Arvydas Jadevicius Dr. Simon Huston October 2014 arvydas.jadevicius@rau.ac.uk simon.huston@rau.ac.uk Executive summary Source: Helptobuysw.org.uk 1. This report examines Help to Buy (HTB) mortgage guarantee scheme s Quarterly Statistics with an emphasis on Gloucestershire region. 2. Majority (80%) of mortgages in the UK were issued to first time buyers with the highest proportion (38%) of financial assistance used to purchase terraced houses. 3. Over the first 6 months of the HTB, there were 7,313 mortgages completed with only 30 of them in Gloucestershire (South). 4. The overall take-up of mortgages supported by HTB in Cheltenham and Gloucester constitutes 97% of Gloucestershire (South). 5. However, the total take-up of the mortgage guarantee scheme in Gloucestershire was very small, i.e. 1.2% of England and only 0.4% of the UK

4 Background Information Help to Buy (HTB) is a 12billion Government scheme designed to encourage home buying (GOV, 2014; HCA, 2014). Its aim is to provide credit-worthy households with the opportunity to acquire their own home, stimulate house-building (HBF, 2013a), and give banks greater confidence to lend (BBC, 2013). The HTB scheme started on 1 April 2013 and will run until 31 March 2016 (or earlier if all of the funding is taken up) (HCA, 2014). The HTB scheme is not available for second homes, buy-to-let purchases and for property over 600,000 (HBF, 2013a). The HTB was heralded by the Prime Minister David Cameron and the Chancellor the Exchequer George Osborne. On the launch of the scheme the Prime minister said (GOV, 2013): Too many hardworking people are finding it impossible to buy their own home - people who can afford the monthly mortgage payments but haven t got rich parents and can t pay the deposit up front < > There is a need for Government to act. Buying your first home is about far more than four walls to sleep at night. It s somewhere to put down roots and raise a family. It s an investment for the future. Above all, it s a sign that everything you ve put in has been worth it. The Home Builders Federation (HBF) (2013b) reported that the scheme got off to a "flying start". According to HBF estimates, there were 4,000 new home reservations in just two months from starting. On average, there were around 500 households a week taking advantage of the scheme. According to Halifax (2013), in June 2013 UK house prices were rising at their fastest rate for nearly three years. However, the HTB scheme has not been without a criticism. Business Secretary Vince Cable warned of "serious inflationary pressures" (BBC, 2013a). Similarly, Dr. Beverley Searle and Richard Lambert suggested that HTB will lead to higher prices due to increased demand for and under-supply of housing (BBC, 2013b). A more comprehensive assessment of HTB scheme and its impact on UK housing market was presented by the Adam Smith Institute (2013). Its findings suggest that Help to Buy will not end the housing crisis, will not solve the housing supply shortage and, more importantly, will likely to aggravate house prices. Instead of HTB, the institute pushes for market liberalisation. According to the campaign group PricedOut (2014), the scheme helped around 18,875 households to step on the property ladder but it also inflated house prices and made home ownership unaffordable for 245,000 people. On the other hand, Lucian Cook, Director Residential Research at Savills UK, John Stewart, Director of Economic Affairs at the Home Builders Federation, and Ed Stansfield, Chief Property Economist at Capital Economics, concur that HTB itself won t spark housing bubble (BBC, 2013b)

5 The key facts Standing back from the polemic surrounding HTB, the School of Real Estate and Land Management (RELM) puts the key facts about the HTB scheme. Our analysis is national but with an emphasis on Gloucestershire. We consider the scheme s adoption from Q Q Since its introduction in 8 October 2013, there were 7,313 mortgage completions through the scheme. This represents 7.52% of all residential mortgage completions in the UK over the same period 1.The corresponding value of guarantees was 153m. The total value of mortgage loans % supported by the 3000 scheme was 40% ,048m which % 1593 financed properties % worth 1,108m , , , , , , , , , , , , ,000 10% 0% Total Completions Percentage of Total Completions Figure 1. Mortgage completions from October 2013 to March 2014, by property value (Source: HM Treasury, 2014) 38% 4% 10% 36% 12% Detached (729) Flat (868) Semi Detached (2619) Terraced (2794) Other (303) Figure 1 presents mortgage completions by property value. It illustrates that almost half of all scheme mortgage completions were for properties worth less than 125,000. The second largest tranche financed using the scheme was between 150,000 and 200,000. The scheme financed only 31 properties in excess of 500,000. Figure 2. Mortgage completions from October 2013 to March 2014, by property type (Source: HM Treasury, 2014) As HM Treasury (2014) report commented, numbers reflect the fact that most mortgage completions through the scheme have been on properties outside London and the South East, in regions where prices are lower. 1 According to Council of Mortgage Lenders (CML) (2014), there were 97,246 mortgages issues over the October 2013 March 2014 period

6 In terms of mortgage completions, broken down by property type (Figure 2), data indicates that the highest proportion (38%) of financial assistance was used to purchase terraced houses. Semi Detached houses were the second most popular property type (36%), following flats (12%) and detached houses (10%) , ,001-30, ,001-40,000 Total completions ,001-50, ,001-60,000 60,001-80, , ,000 Percentage of total completions > 100,000 Figure 3. Mortgage completions from October 2013 to March 2014, by total applicant household income (Source: HM Treasury, 2014) 30% 20% 10% 0% Looking at total household income (Figure 3), the majority of scheme applicants (60%) earned between 20,000 and 50,000 p.a. Households with incomes between 50,000 and 100,000 comprised 31% of total mortgage completions. In terms of type of borrowers, it is seen (Figure 4) that the majority of those who used the mortgage guarantee scheme were first time buyers. 80% 20% Completions (non first time buyer) Completions (first time buyer) Figure 4. Mortgage completions from October 2013 to March 2014, by type of borrower (Source: HM Treasury, 2014) - 6 -

7 Regional analysis This section presents mortgage completions via HTB regionally, concentrating on Gloucestershire. It shows regional breakdown of average property value, first time buyers and mean borrower income. Figure 5 illustrates that the majority of completions were in England (81%), following Scotland (13%), Wales (13%) and Northern Ireland (1%). In terms of average property value and average borrower income, the highest numbers were for England, following Wales, Scotland and Northern 100% 200,000 Ireland. Although the 81% 80% 160,000 difference between 60% 40% 120,000 80,000 average property value and income were greatest for England, the 20% 13% 40,000 estimated loan/income 0% 5% Scotland (957) Wales (369) Northern Ireland England (5,890) (97) Figure 5. Mortgage completions from October 2013 to March 2014, by region (Source: HM Treasury, 2014) 1% Percentage of total completions Mean property value ratio suggests that in all four regions individuals were borrowing around 3 times their annual income to acquire the property (Figure 6). 160,000 Further regional 144, analysis suggests 140, that there were 120, , , total 100,000 80,000 90, mortgage completions in the 60,000 51, South West region 41,066 39,104 36, ,000 which constituted ,000 8% of total completions. In Scotland Wales Northern Ireland England the South West, Average property value Average Borrower Income Loan/Income ratio the average property value Figure 6. Average income, property value and ratio by region (Source: HM Treasury, was 157,500 and 2014; Authors calculations) the mean borrower income was 50,210. The estimates loan/income ratio stood at 3.1, which was above England average, suggesting somewhat lower regional housing affordability

8 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, Cheltenham Gloucester Gloucestershire (South) Value of loans Total value of properties sold Number of completed loans Figure 7. Summary statistics for Cheltenham and Gloucester (Source: HM Treasury, 2014; Authors calculations) On the city level, there were 13 and 16 completed loans supported by the mortgage guarantee scheme in Cheltenham and Gloucester. This represents 97% of loans approved in the Gloucestershire (South). In Cheltenham, the scheme supported a total loan value of 2m which represents an average mortgage loan value of 152,100. In Gloucester, the value of guaranteed loan support was somewhat higher at 2.2m but the average loan amount was considerably lower at 139,500. The total value of properties sold under the mortgage guarantee scheme in Cheltenham was 2.1m and 2.4m in Gloucester. In relative national terms, the region s share of scheme take up was very small. In Gloucestershire, it only represents 1.2% of all completed loans supported by the mortgage guarantee scheme in England and only 0.4% in the UK

9 Project Team Dr. Arvydas Jadevicius is a Lecturer in Real Estate Investment at the RAU. With a 1st class BSc (Hons) and MSc in Property Management & Investment (Merit), Arvydas has now completed his PhD titled Examination of Property Forecasting Models - Accuracy and its Improvement through Combination Forecasting. He has extensive expertise in all areas of market research intelligence, data collection and analysis. Arvydas is the past-chair of the European Real Estate Society PhD Network ( ). Dr. Simon Huston lectures Property Investment at the RAU. Simon is interested in the strategic transformation of space to improve people's lives. After serving as a medic, Simon graduated from LSE, qualified as an accountant with Deloitte and worked as a commercial analyst for the Queensland Government. During his fifteen year academic career, Simon taught thirteen different business and property courses in a range of international institutions, including five years at the University of Queensland. He has published two books, 16 refereed journal articles and presented at 26 conference papers. Data and its limitations This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by the Royal Agricultural University for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of the Royal Agricultural University in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of the Royal Agricultural University to the form and content within which it appears. Copyright Notice The contents of this document are the copyright of the Royal Agricultural University (RAU). It is released on the condition that it will not be copied in whole, in part or otherwise reproduced (whether by photographic, reprographic or any other method) and that the contents thereof shall not be divulged to any other person other than that of the addressee (save to other authorised officers of his organisation having a need to know such contents, for the purpose of which, disclosure is made by the RAU) without prior consent of the RAU

10 References Adam Smith Institute (2013) Burning down the house: Government is not the solution to the housing crisis. Briefing Paper, pp.5. BBC (2013a) Mortgage scheme could lead to house price bubble warns Cable [Internet]. Available at: < Accessed [20 February, 2014]. BBC (2013b) Viewpoints: Will Help to Buy create a housing bubble? [Internet]. Available at: < >, Accessed [18 February, 2014]. Council of Mortgage Lenders (CML) (2014) Gross mortgage lending stable in May [Internet]. Available at: < Accessed [01 July, 2014]. GOV (2013) Help to Buy: mortgage guarantee launches today [Internet]. Available at: < Accessed [18 February, 2014]. < GOV (2014) Affordable home ownership schemes [Internet]. Available at: ownership-schemes/help-to-buy-equity-loans>, Accessed [18 February, 2014]. Halifax (2013) Halifax House Price Index - June 2013 [Internet]. Available at: < 2013/>, Accessed [18 February, 2014]. Help to Buy (HTB) (2014) [Internet]. Available at: Accessed [18 February, 2014]. < HM Treasure (2014) Help to Buy: mortgage guarantee scheme Quarterly Statistics [Internet]. Available at: < ntee_scheme_quarterly_stats.pdf>, Accessed [01 July, 2014]. Home Builders Federation (HBF) (2013a) Help to Buy: Factsheet for Builders [Internet]. Available at: < Accessed [18 February, 2014]. Home Builders Federation (HBF) (2013b) Help to Buy Equity Loan Scheme Gets Off to Flying Start [Internet]. Available at: < Accessed [18 February, 2014]. Homes and Communities Agency (HCA) (2013) Help to Buy Buyer s Guide [Internet]. Available at: < Accessed [18 February, 2014]. PricedOut (2014) Help to Buy prices out six times more people than it helps [Internet]. Available at: < Accessed [24 February, 2014]