Help to Buy extension boosts housebuilders

Chancellor George Osborne's announcement of an extension in taxpayer support for the property sector drove housebuilder stocks higher on Monday, led by Persimmon, which was up 4% to 1,366p.

Even before the latest extension, which is equivalent to a further £6 billion boost, the four biggest listed companies had increased in market value by over 80% since the government introduced the Help to Buy Scheme in April 2013.

Shares in FTSE 250 constituent Barratt Developments climbed 3.3% to 425.90p; Taylor Wimpey climbed 2.8% to 119.10p; and Berkeley, which reports tomorrow, rose 1.8% to 2,689p on the news, which sent a clear message to all developers to ramp up output as consumer funding to buy new build will be available until the end of the decade.

Under Help to Buy, the government lends a prospective home buyer up to 20% of the cost of their new-build home so a buyer needs only a 5% cash deposit and a 75% mortgage to make up the rest.

The extension of Help to Buy for new properties to 2020, four years later than when it had been due to end, will support the construction of 120,000 additional homes but comes amidst suggestions that the scheme could artificially create another housing bubble and put properties beyond the reach of first-time buyers, the very people the scheme was designed to support. There are concerns in particular that the second phase of the scheme, the mortgage guarantee offered on new and existing homes worth up to £600,000, is inflating prices in London and the south east.

However, according to the government's report into the scheme by the National Audit Office on 6 March, the average purchase price for customers using these loans is £201,800, based on average household income of £44,700 and some 89% of users are indeed first-time buyers. The average income to mortgage ratio was also relatively modest at 1:3.4.

To date £518 million of equity loans have been issued on 12,875 loans and a further 9,600 customers have been approved but have not yet drawn down the funds.

Labour's shadow Chancellor Ed Balls called for the scheme to be cut from its current maximum of £600,000 to under £400,000, and said regional caps should be introduced to reflect the higher prices in the south east. He also said that the scheme could inadvertently hasten the inevitable interest rate rises, which would of course dampen the housebuilder sector.

The Chancellor also announced that the first new garden city for 100 years is to be built at Ebbsfleet, Kent. Both measures will be in this week's Budget.