March 25, 2013

Budget 2013: a “game-changer” for the construction industry?

Directors of development and construction companies, and their investors, finally had something to smile about following the Chancellor’s budget speech last week. Following a difficult five years for the property and construction industries the Chancellor announced several measures in his 4th Budget specifically aimed at stimulating the stagnant property market and encouraging new development. Such is the level of investment that some commentators have called it a “game-changer” for the industry.

Following years of slow property sales and underdevelopment on a grand scale the government is faced with combatting a severe housing shortage and stimulating a struggling construction sector that currently employs approximately 2.6 million workers and contributes 8% to the UK’s Gross Domestic Product. Not too much at stake then.

As part of the 2013 Budget two government backed schemes are being introduced to aid mortgage availability and support home buyers across the board, not just first-time buyers as has been the practice in previous years.  The “Help to Buy” guarantee is aimed at encouraging lenders to supply 95% mortgages by having the government underwrite 20% of the loan via a brand new indemnity fund. Differentiating the scheme from previous initiatives such as the NewBuy scheme, the Help to Buy guarantee requires no contribution or commitment from the housebuilder. 

A second initiative, the “Help to Buy” equity loan, extends the reach of the previous First Buy equity loan scheme – which was only available to first time buyers on a joint income of less than £60,000 – to any buyer of a new home valued up to £600,000. Buyers will be required to provide a 5% deposit with the government investing a further 20% which has to be repaid once the property is sold. The government loan will be interest free for a period of five years but following this will attract an interest rate of 1.75% which will rise annually by RPI +1%.

In an additional boost for the construction industry planned funding for the Build-to-Rent initiative announced in the Autumn Statement was increased from £200m to £1bn. Further, the government plans to invest £3bn in infrastructure per year for a period of five years, commencing in 2015.

City traders and investors immediately recognised the importance and potential impact of the announcements leading to a flurry of trading of shares for some of the country’s largest property developers. So favourable were the markets’ view of the announcements that share prices for Bellway, Bovis, Taylor Wimpey, Barratt and Persimmon all closed between 3.1 and 6.6% up on the previous day.

Holmes & Hills Solicitors has that specialise in advising construction companies on effective resolution of disputes over construction contracts.

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