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How Effective Might The Help-to-buy Isa Be For First Time Buyers?
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When UK Chancellor George Osborne announced the Help to Buy ISA in January 2015, it was cynically viewed by some as the Conservative’s election-year ploy, a response to Labour’s proposed stamp duty elimination for first-time buyers. There is another way of looking at this: the fact the topic of first-time homebuyers played into the national election certainly speaks to the importance of the cost and short supply of housing.
Post-election, the Help to Buy ISA is on track for implementation in the fall of 2015. It enables would-be homebuyers to deposit up to £200 per month – up to a total of £12,000 – into a tax-free account that will be matched with up to £3,000 from the Government (£1 for every £4 saved) if and when that money is used to buy a first home. It will give the new homeowners a structure for savings along with the financial incentives to do so.
Detractors of the programme suggested that the projected cost to the Government of £835 million could instead be used to directly build homes, including affordable housing. More building takes place currently in the private sector due to the work of property fund managers and the like, investors who develop housing where and when planning authorities allow and where it serves a local economic need.
At least the scheme seems to favour buyers of entry-level-cost housing. A spokesperson for property firm Savills told The Guardian in March that they predict “it is more likely to help get buyers over the deposit hurdle in the lower value, lower growth markets of the Midlands and the North.” He indicated that affordability was less likely for younger buyers in London and the South East, where capital growth land opportunities are less likely given the degree of development and high price of land in those areas.
So it seems that investors in property funds might do well to focus on economic development and growth industries in places such as Peterborough, Manchester, Birmingham, Allerdale and Liverpool. Younger families are reportedly moving out of London and to where jobs are available and property fund investors are building price-accessible homes that further facilitate the local economy (those involved in UK land investments take note).
This move away from the Capital City is a theme in capital growth investing for housing as well as industry. The increasingly high prices in London make it more challenging for entrepreneurs and established firms to set up business operations there and attract staff at reasonable wages. Commutes of longer and longer distances have become necessary. Property fund investors who can instead buy property near Southampton or Peterborough, for example, then convert it to more valuable residential or commercial property, are more likely to find a ready market of buyers due to the Help to Buy ISA programme.
There will always be opportunities for capital growth in London as well as the rest of the UK. However, the equation that can provide the fastest valuation increases – the conversion of unused land to housing by way of council approvals – may more likely happen up North, down South and to all points Eastand West.
Investors should always investigate risks relative to their investment portfolios. In almost every circumstance, the investor should speak with an independent financial advisor before taking a position.
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