UK first-time buyer scheme lifts housebuilders, but success hinges on design

By Raechel Thankam Job, Simone Lobo and Yadarisa Shabong

Sept 28 (Reuters) - Britain's new first-time buyer support scheme could provide the biggest boost to housebuilders in years, helping revive sales that have languished since the previous "Help to Buy" programme ended in 2023.

But investors and analysts say much will depend on next month's budget, which will set out who qualifies for support and where it can be used.

The "Your First Home" programme is designed for first-time buyers who can afford mortgage payments but have struggled to save deposits amid high rents and broader cost-of-living pressures.

Buyers will need deposits of just 2.5%, while the government will provide loans of up to 20% of a property's value, allowing them to qualify for mortgages that would otherwise require larger deposits. The loans will have an initial interest-free period.

Details including income thresholds and regional price caps are due when new finance minister John Healey delivers his first budget on October 28.

Housebuilder shares rallied on Monday as investors bet the scheme could unlock pent-up demand and support new-home sales.

Britain has been without a government-backed buyer support scheme since "Help to Buy" ended in March 2023, the longest gap in such support for decades. Developers have lobbied hard for its return as high borrowing costs and affordability pressures weighed on demand.

"Overall, I think this could help stimulate volumes in the housebuilding market," said James Thorne, fund manager at Columbia Threadneedle, a shareholder in homebuilder Crest Nicholson and some building materials suppliers.

DEVIL IN THE DETAILS

The biggest question is whether the scheme is broad enough to stimulate demand while remaining targeted at lower-income buyers.

Unlike "Help to Buy", the new programme will include income caps and tighter price restrictions aimed at concentrating support on those deemed most in need.

Analysts said the design of the caps would determine how much demand the scheme generates, particularly in higher-priced parts of southern England.

Peel Hunt analyst Sam Cullen said the two biggest unknowns were the level of regional price caps and how regions would be defined.

The previous scheme used England's nine standard regions, but Cullen said builders sometimes struggled where affluent areas fell within lower-cap regions or straddled regional boundaries.

The new programme will also require developers to contribute financially, raising concerns that smaller builders could struggle to participate.

"Its success will largely be dependent upon the parameters set in terms of household income, house price and developer contribution limits," said Steve Turner, executive director of the Home Builders Federation.

"Help to Buy" drew support from builders because it was accessible to a broad range of buyers and developers, Turner added.

Richard Donnell, executive director at property website Zoopla, said boosting first-time buyer purchasing power would help, but increasing housing supply remained equally important.

"The greatest impact on housing delivery will come if it is accompanied by more homes being built at the price points and in the sizes first-time buyers are looking for," he said.

Analysts identified Persimmon and MJ Gleeson, both heavily exposed to first-time buyers, among the likely winners.

Building materials companies such as bricks supplier Ibstock could benefit even sooner, as construction activity typically rises before homes are sold.

"The parts of the market likely to see the greatest benefit are brick suppliers and other areas of the supply chain, which should benefit from that volume growth," Thorne said.

(Reporting by Raechel Thankam Job, Simone Lobo and Yadarisa Shabong in Bengaluru. Editing by Mark Potter)