Estate agent James Pendleton said the threshold is pushing values up for first-time buyers because inflated demand at that level is elevating prices.
Through the Help to Buy equity loan scheme, the government lends up to 20% of the purchase price (and 40% in London) so buyers don’t need to raise as much of a deposit to buy a new build home.
The agent’s study of seven London development hotspots shows more than four times as many new build homes were sold just below the threshold compared to just over it in the past year.
Similar to the effect of the previous system of Stamp Duty, the estate agent argues there is an artificial vacuum for sales between £600,000 and £625,000. Of new build homes sold in the key areas between £575,000 and £625,000 83% achieved less than £600,000.
The study covered 380 properties across the £575,000 to £600,000 price bracket sold in Battersea, Putney, Tooting, Balham, Wandsworth, Clapham and Brixton in the last year. That compares with 183 properties sold in the £600,000 to £625,000 bracket.
Of the 563 homes in total, 184 new builds – making them eligible for Help to Buy – were sold at just under the threshold (£575,000 to £600,000) while only 38 new builds achieved between between £600,000 and £625,000.
James Pendleton said this is squeezing the market and storing up problems for the future as those with bigger budgets are buying properties below the threshold to take advantage of the scheme.
It said this means buyers can end up paying more for smaller properties that have been ‘priced up’ to meet this increased demand. Sellers of homes that are not new builds are also under pressure to reduce their prices to compete, further distorting the market.
Lucy Pendleton, co-founder and director of James Pendleton estate agents, said: “Artificially high demand in this price zone just beneath £600,000 will be forcing many to pay over the odds.
“By introducing a Help to Buy threshold and axing Stamp Duty slab tax, the government has simply replaced one disruptive line in the sand with another.
“These hurdles placed at arbitrary price levels have always had a distorting effect on the market and that’s what we are seeing now, smack bang in the middle of the cost of many one and two-bed flats for young professionals, which is a crucial price point for first-time buyers in these areas.”
She added: “This may cause problems when these new builds are sold on, as they will no longer be available under Help to Buy and sellers won’t benefit from the extra demand the scheme generates.”