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News Release

London

Jones Lang LaSalle reacts to NewBuy mortgage guarantee scheme 


London, 12th March 2012 Jon Neale, residential research director at Jones Lang LaSalle reacts on the latest government housing initiative, NewBuy, the mortgage guarantee scheme announced today.
 
The government has today launched the NewBuy Guarantee scheme. Together with housebuilders, it will guarantee a slice of lending to those with smaller deposits, allowing them to access the mortgage market and buy a new property.
 
“The NewBuy Guarantee scheme is very welcome news for the house building industry. With only a little over 100,000 new homes constructed in England over each of the past few years, we are building at the lowest rate since the Second World War.”
 
“The lack of mortgage funding is a serious impediment to recovery. Many buyers need a deposit of at least 20%, equivalent to £40,000 for a home costing £200,000. This is preventing both first-time buyers and movers with low equity from buying a home. The resulting low sales rates have serious impacts for development.”
 
“Our own research suggests that many house builders believe that the NewBuy Guarantee will be instrumental in reviving the industry.”
 
“On the other hand, there are reasons to be cautious. Firstly, most major house builders continue to indicate that they intend to grow their business by increasing margins rather than volumes, so there is unlikely to be a surge in build levels, irrespective of the success of this scheme. Many developers have moved towards developing larger family-sized houses on sites recently acquired, and that remains their business plan and the basis for the high levels of profit reported recently.
 
“They have been left with more peripheral sites in urban locations, often with planning consent for flats, purchased before the housing downturn. These are not viable in the current climate, and there could be concerns if NewBuy Guarantee is solely used for such sites, particularly if there are no longer-term plan to expand land acquisition and development activity.”
 
“However, the interest rates on offer, at circa 5% in the majority of cases, are still higher than the wider market. According to the Bank of England, the typical rate for a two-year fixed mortgage at 75% loan-to-value was 3.24% in December. This compares with 4.29% to 5.69% for a two-year package under HomeBuy.”
 
“Thirdly, it remains to be seen how selective lenders will be in selecting customers. If they are very conservative on the multiples of income they will lend against, or credit history or employment status, the scheme may not be as much a success as the industry hopes.”
 
“The other issue for first-time buyers more generally is whether lenders simply reallocate mortgage funds to this, away from more conventional products. The overall level of lending might not increase, but it would still result in an uptick in development if successful.”
 
“Finally, the developers listed at present are all large national house builders. The financial crisis and the market downturn have been most damaging to smaller developers, who have not been able to access capital market funding or government assistance in recent years. They still remain the major source of new housing, however, and it is vital that they also benefit from schemes such as this. It would be unfortunate if it contributes to greater consolidation within the industry, which reduces competition and choice for consumers.”