UK Budget update 1 - Construction Sector

One of the biggest announcements made in the budget today was aimed at the UK housing market.

The Help to Buy scheme improves on a previous scheme known as FirstBuy. It enables buyers to put down a 5% deposit on a newly built home.

Up to 20% of the cost of the home is funded by a "shared equity" loan, which will be repayable when the home is sold.

That loan will be interest-free for the first five years.

Thereafter borrowers will have to pay a 1.75% annual fee, which will then rise by 1% above the Retail Prices Index (RPI) measure of inflation.

There is also a new mortgage guarantee scheme that is being compared to Fannie Mae and Freddie Mac in the US.

The chancellor also announced a new mortgage guarantee, which he claimed would dramatically increase the availability of loans. It extends the previous NewBuy Guarantee scheme to include older houses as well as new-builds.

"We're going to help families who want a mortgage for any home they're buying, old or new, but who cannot begin to afford the kind of deposits being demanded today," he said.

http://www.bbc.co.uk/news/business-21849974

No one should be surprised at Government attempts to prop up house prices under the disguise of "helping" people, usually priced out first time buyers, who are of course priced out for a reason - prices are too high. The immediate effect of this policy has been on the share price of companies in the construction sectors, most of which are seeing a big rise today. Taylor Wimpey, Barrett Development, Redrow and others are all doing well on the back of this news as they are likely to benefit from being in the new build sector.

On the other hand, once the dust settles and people realize that house prices are still too high for those priced out it will be interesting to see how high the take up is and how relaxed the Government are when handing out taxpayers money. The recent history of Fannie May and Freddie Mac is not one that should be held up as shining light of achievement. The UK Government seems to have decided that the UK taxpayer, whether you are currently a property owner or not, will be a potential tax loser if house prices fall.