Government plans to stimulate demand for new-build homes through its proposed Your First Home scheme will have limited effect on development unless problems in the planning system are also addressed, Hampshire Trust Bank has warned.
The lender’s development finance team said it is seeing signs of improvement in new-build sales, but argued that uncertainty over planning continues to influence which schemes developers pursue and where they are prepared to deploy capital.
The comments follow the government’s announcement that Your First Home will be confirmed at next month’s Budget.
The scheme is expected to allow eligible first-time buyers in England to purchase new-build properties with deposits of 2.5%, supported by a 20% government-backed equity loan and an initial interest-free period.
Household income and local property price caps will apply, while developers participating in the programme will be expected to make a contribution towards its costs.
SALES CONDITIONS SHOW IMPROVEMENT
Neil Leitch (pictured), managing director of development finance at Hampshire Trust Bank, says: “Across HTB’s development finance book, we are seeing some encouraging signs on the sales side.
“Monthly sales as a proportion of completed stock are increasing, and we are seeing fewer funded sites go for two months without a sale.
“Against that backdrop, measures which help first-time buyers overcome the deposit barrier and support home ownership should be welcomed.”
However, Leitch argues that stimulating demand will not necessarily result in additional development if obtaining planning permission remains difficult and unpredictable.
He says: “But unless government sorts planning, there is a danger much of this becomes pointless. There is little value in stimulating demand for new homes if developers still cannot get viable schemes through the system in a reasonable and predictable way.
“The encouraging signs we are seeing on sales do not remove that front-end uncertainty. Planning remains costly, slow and inconsistent, and that is affecting both the number and type of schemes developers are prepared to take forward and where they commit capital.”
DEVELOPER CONTRIBUTION RAISES VIABILITY QUESTION
Leitch also raises concerns about the proposal for developers joining Your First Home to contribute towards the cost of the scheme, arguing that it would add to an existing range of development costs.
He says: “The requirement for participating developers to contribute towards the scheme also needs careful thought.
“Developers already face Section 106, CIL, BNG, significant upfront planning costs and additional requirements associated with building safety.
“These costs are not experienced in isolation. They accumulate within the same appraisal and directly affect viability. Government cannot keep adding costs to the delivery of the very homes it is trying to help people buy.”
Further details of the contribution expected from participating developers, together with the scheme’s overall costs and implementation timetable, are due to be announced at the Budget.
SUPPLY-SIDE REFORM NEEDED
Leitch says measures to improve first-time buyer affordability need to be accompanied by changes that make it easier for developers to bring viable projects forward.
He says: “So yes, help first-time buyers. Buyer incentives matter. But if government wants that support to translate into more homes, it also must fix the supply side.
“Sort planning, properly resource local planning authorities, make decisions more consistent and predictable and hold the system to account for delivery. Otherwise, we are supporting people’s ability to buy while continuing to constrain developers’ ability to build.”
