Many buyers using Help to Buy scheme would have bought a home anyway

The Help to Buy scheme has increased home ownership and housing supply but many of those using the scheme would have been able to buy a home anyway, according to a new report from the Government’s spending watchdog.

The scheme was introduced by, what is now, the Ministry of Housing, Communities and Local Government in April 2013 to increase both home ownership and boost housing supply, by helping people to get mortgages and thereby, create more new build homes.

By December 2018, it had made around 211,000 loans amounting to £11.7 billion. Between the start of the scheme in April 2013 and September 2018, some 38% of all new build property sales have been supported by loans through the scheme, which is around 4% of all housing purchases during this time, according to the report from the National Audit Office (NAO).

According to the Department’s own independent research, 37% of households would not have been able to buy any property without the scheme and the NAO estimates this has resulted in around 78,000 additional sales of new build homes as of December 2018. Around 81% of all buyers supported by the scheme have been first time buyers.

The Department’s research also found that around three fifths of buyers could have bought a property without the support of Help to Buy, but not necessarily a property they wanted. Almost a third of all buyers, some 65,000 households, could have purchased a property they wanted without the scheme.

Around 4% of the 211,000 buyers who had used the scheme by December 2018 had household incomes over £100,000. In the Department’s opinion these transactions are an acceptable consequence of designing the scheme to be widely available.

The report says that take-up has been low in less affordable areas where the ratio of house prices to average earnings is higher. To address the initial low London take-up, the Government increased the maximum loan in the region to 40% of the property value.

This improved London take-up from 12%, between the start of the scheme and December 2015, to 26% of new build sales, between January 2016 and September 2018, but it is still lower than the rest of England at 46% of new build sales over the same period.

The NAO’s analysis has found that buyers who have used the scheme have paid less than 1% more than they might have paid for a similar new-build property bought without the support of the scheme.

The NAO’s estimate of the premium is significantly less than other estimates, which range between 5% and 20%, as these do not compare similar properties and so do not accurately assess any premium paid by those using the scheme.

However, new build properties typically cost around 15% to 20% more than an equivalent second hand property and some buyers who want to sell their property soon after they purchase it might find they are in negative equity.

The scheme has supported five of the largest developers in England to increase the overall number of properties they sell year on year, thereby contributing to increases in their annual profits, which have all increased since the scheme’s start. These five developers sold between 36% and 48% of their properties with the support of the scheme in 2018.

By 2023, the net amount loaned through the scheme is forecast to peak at around £25 billion in cash terms. The Department expects to recover its investment by 2031/2032 and make a positive return overall and redemptions are running ahead of expectations.

However, the NAO report highlights that the Department’s investment is exposed to significant market risk as it is sensitive to house-price changes and the timing of buyers repaying loans. There is also an opportunity cost in tying up this money in the scheme for a considerable period, rendering it unavailable for other housing schemes or departmental priorities.

It also says that there is less need for the scheme now that higher loan to value mortgages are more available, and the Department plans to end the scheme in 2023. Nevertheless, there is concern across the housing sector that the end of the scheme will result in a drop in new developments and sales.

In the meantime, there will be a new scheme from April 2021 restricted to first time buyers with lower regional limits on the maximum purchase price.

The NAO recommends that since the Department has not undertaken a detailed assessment of the impact of the scheme on the wider housing market, it should expand the scope of its next evaluation to examine such wider effects, including a potential influence on the new build premium, and identify lessons learned for any future interventions.

‘Help to Buy has increased home ownership and housing supply, particularly for first time buyers. However, a proportion of participants could have afforded to buy a home without the government’s help. The scheme has also exposed the Government to significant market risk if property values fall, as well as tying up a significant public financial capacity,’ said Gareth Davies, the head of the NAO.

‘The Government’s greatest challenge now is to wean the property market off the scheme with as little impact as possible on its ambition of creating 300,000 homes a year from the mid-2020s. Until we can observe its longer term effects on the property market and whether the Department has recovered its substantial investment, we cannot say whether the scheme has delivered value for money,’ he added.

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