Shares in major housebuilders rose sharply after the Government announced plans for a scheme intended to help first-time buyers in England purchase new-build homes.
The Your First Home initiative, unveiled at the weekend, is expected to allow eligible first-time buyers to purchase a new-build property with a 2.5% deposit. The Government would provide an additional 20% through an equity loan, with the loans initially carrying an interest-free period.
The full terms of the scheme are due to be outlined by Chancellor John Healey at next month’s Budget. They are expected to include a household income cap and local property price caps, intended to ensure the support is targeted at people who need it.
Developers will also be expected to contribute when they join the scheme, helping to cover its costs. The Government has not yet announced the detailed implementation timetable or the precise terms for the developer contributions.
Housebuilders recorded steep gains when London trading opened on Monday following the announcement. Barratt Redrow led the FTSE 100 Index higher, with its shares rising 12%.
Persimmon, which is listed in the FTSE 250 Index, saw its shares rise 15%. Bellway and Taylor Wimpey were both 12% higher, while Vistry gained 10%.
Neil Wilson, UK investor strategist at Saxo, described the plans as “a big shot in the arm for housebuilders as much as first-time buyers”. He said the scheme came as the industry faced pressure from higher mortgage rates and inflation.
Mr Wilson said that increasing demand could encourage developers to build more homes, although he noted that the planned price caps meant the scheme would apply only to more modest properties. He described the proposal as “an unambiguous win for the industry”, while acknowledging that its finer details had yet to be announced.
Richard Hunter, head of markets at interactive investor, said the housebuilding sector had faced higher mortgage rates, strained affordability and a slow planning process for new homes.
James Nightingall, founder of property search service HomeFinder AI, said the new-build sector had needed an initiative capable of getting the market moving again.
The potential effect on housing supply will depend partly on the homes made available through the scheme. Richard Donnell, executive director at Zoopla, said a targeted equity loan would increase the buying power of first-time buyers, but added that the greatest impact on housing delivery would come if it was accompanied by more homes being built at the prices and sizes those buyers were seeking.
He said the detailed price caps to be announced at the Budget would be important in determining how much additional demand the scheme could unlock.
Paul Turner, chief executive of the National House Building Council, described the scheme as “a welcome boost for the industry”. However, he said there was no single solution to the housing challenge and that supply also needed to be addressed through faster planning reform and the removal of unnecessary regulatory burdens.
Mr Turner also said maintaining the quality of new homes would remain important.
For buyers, the scheme could reduce the size of the deposit needed to purchase a new-build property. Nicholas Mendes, mortgage technical manager at John Charcol, said the deposit was the biggest barrier for many people trying to get onto the property ladder.
He said reducing the deposit to 2.5% could make a difference for buyers who could afford the monthly repayments but had struggled to save while paying rent.
However, Mr Mendes said buyers would need to understand the scheme’s terms before committing. The initiative is limited to new-build properties, which he said often carried a premium compared with comparable existing homes. The equity loan would also ultimately need to be repaid.
Mr Mendes pointed to other low- or no-deposit options currently available, including Skipton Building Society’s track-record mortgage and Accord’s £5,000 deposit mortgage. He said the most suitable option would depend on a buyer’s circumstances and the type of property they wanted.
Andrew Montlake, chief executive of mortgage broker Coreco, said the “real test” would be in the details, including the price caps, income limits, developer contributions and what would happen after the interest-free period ended.
John Newcomb, chief executive of the Builders Merchants Federation, said the industry was waiting for the exact terms of the scheme. He said housebuilding had been stagnant for too long and that support was needed to rebuild confidence.
The sharp rise in housebuilder shares shows the market’s positive initial response to the announcement. Whether the scheme delivers a sustained increase in demand and construction will depend on the limits, costs and implementation details due to be set out at the Budget.
