The Help to Buy scheme could pull large numbers of tenants out of the sector, flood the market with rental properties, and drive down monthly rents by 5%.
The warning, from Chesterton Humberts, covers London, but is one of the first specific predictions as to the effect that Help to Buy will have on the rental sector.
However, Countrywide – the UK’s largest chain – has also said that the second phase of Help to Buy will transfer people from the private rented sector into home ownership.
Countrywide’s group commercial director, Nick Dunning, said the scheme will “undoubtedly facilitate a proportion of tenants to make the transition for home ownership”.
Meanwhile, the Spicerhaart chain said that in the first week of this month – after the early launch of Help to Buy was announced – its branches were inundated with new applicant inquiries. CEO Paul Smith said 7,281 new buyers registered, compared with 3,800 in the first week of October last year – a 92% increase.
The second phase of Help to Buy has been brought forward by three months and, as from Tuesday this week, 95% mortgage applications could be made under the scheme. Any tenants deciding to use the scheme, which is aimed at buyers of both old and new housing stock worth up to £600,000, would not however be able to complete on their purchases until the New Year.
Chesterton Humberts said it is “confident” that the scheme will prove attractive to tenants.
It said that their exodus will create more competition between landlords eager to secure good-quality tenants and will push average monthly rents down.
However, the agent says that as the scheme brings more buyers into the market, house prices will rise.
It expects the greatest impact to be in areas popular with younger buyers: in London, these would include Docklands, Islington, Battersea and Fulham.
Richard Davies, residential operations director at the firm, said: “More landlords may find their tenants giving notice as they move away from the private rented sector and into home ownership.
“Dependent on the scale of first-time buyers taking advantage of the Help to Buy scheme, this could seriously impact the number of rental properties coming to the market for re-letting, which could in turn see rental levels fall.”
Comments
House prices are too high goes the cry!
Average (leave out London) used to be 3.5 tines earnings but is now (say) 7 times earnings?
But, could not it also be that wages are too low? If they had risen in line with inflation over the last 5/6 years - should that not be taken into consideration?
I agree that there will be a short term surplus of smaller rental properties as tenants take advantage of the help to buy scheme. However prices will inevitably rise as demand for this type of property increases to the point that tenants will be unable to afford the properties at which time the rental market will stabilise again. This happened in the eighties when property prices dropped dramatically following the Governments removal of mortgage interest relief - many tenants took advantage of the low prices but as the market picked up they were soon priced out of it again.
I agree the new scheme is not good for buy to let. It will almost certainly encourage existing tenants to buy. But not only that it will make the sales market for bottom end properties much more competitive with more FTB's in the market.
BTL investors may find it more difficult to secure properties especially as the new scheme specifically excludes BTL.
In my view not a bad idea.
whether or not tenants become owners does not affect the overall amount of properties in the market. At the moment we have a chronic shortage of properties, this can only be solved by a massive, ongoing building program over many years. Once there are enough properties to go round prices will then normalise, until then rents and mortgage payments, rather than just prices, will generally rise, taking an ever larger portion of disposable income.