The Help-to-Buy initiative has transformed the UK housing market, creating new opportunities for property bonds, as Andrew Turnbull, managing director and co-founder of Wellesley, explains…
WHEN THE government launched its Help to Buy scheme in 2013, it was billed as a way to help first-time buyers enter the housing market. But recently, a new group of beneficiaries has emerged: property bond investors.
“The Help to Buy scheme set out to provide first-time buyers with equity loans and the ability to get their foot on the housing ladder,” explains Andrew Turnbull (pictured below), managing director and co-founder of Wellesley. “So the government would put down 20 per cent of the equity required, the buyer would put down five per cent and then a bank would lend 75 per cent of the value of the property.
“It’s been reasonably successful at enabling those who would have otherwise struggled to get on the housing ladder. However, it has also given a significant boost to one segment of the market, which is now outperforming in comparison to other property segments.”
This booming segment is mid-range properties which have been developed with the Help to Buy market in mind. This means that developers have been focusing on properties which can be sold for no more than £600,000 (the upper price limit on all Help to Buy homes), and they must be suitable for the average first-time buyer.
“We’ve noticed that developers both small and large have readjusted their focus onto creating housing stock that meets the needs of those types of buyers,” says Turnbull. “And I think where you see this most prolifically is on the outskirts of London where the price of land makes it possible to build flats and houses that are in and around or under the £600,000 level.
“And as a result, we’ve also seen lenders like ourselves focus on lending on those types of properties.”
Wellesley’s property bonds are used to fund building projects across the UK. This means that Turnbull spends most of his time travelling around the country going from one building site to another and vetting the individuals and companies behind each development.
“We are looking for trustworthy developers, and we are looking at properties that we consider to be affordable by the average person living in that area,” he says. “And we’ll always readjust our view on how we underwrite loans and what sort of assets we’re willing to fund.
“Our goal is to get out of every single loan successfully, on time if not early.”
Wellesley measures liquidity by looking at the number of transactions that have occurred over a certain period of time among similar properties. This gives the firm an idea of the affordability of the properties under development, and the likelihood that they will sell upon completion.
“To give an example – the average house or flat that we financed in 2017 was valued at £311,000,” says Turnbull. “That was typically a two or three bed dwelling in somewhere like Manchester, Birmingham or Leeds or Nottingham.”
In the future, Turnbull expects the Help to Buy boom to lead to a surge in demand for properties in the north of England. But long-term, developers – and lenders – cannot rely on the Help to Buy scheme to prop up the UK’s housing market.
“Whether it lasts for another one, two, three or, five years, I think [the scheme] has certainly achieved its purposes,” adds Turnbull. “But I wouldn’t be surprised if there are some adjustments made to the way it works in the very near future.”
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