Friday, 23 August 2019

Help to Buy did help, but was it necessary?

Help to Buy did help, but was it necessary?

THE government’s Help to Buy scheme has increased home ownership and housing supply, according to a report by the National Audit Office (NAO).

But the report adds that many of those using the scheme would have been able to buy a home anyway.

The scheme was introduced by what is now the Ministry of Housing, Communities & 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.

However, as the scheme is demand-led, and all eligible applicants are given equity loans, the ministry did not set itself targets for either of these measures. The scheme is the ministry’s largest housing initiative by value.

Homes England delivers the scheme. By December 2018, it had made around 211,000 loans amounting to £11.7 billion in total.

Between the start of the scheme in April 2013 and September 2018, 38 per cent of all new-build property sales have been supported by loans through the scheme, which is around four per cent of all housing purchases during this time.

According to the ministry’s own independent research, 37 per cent of households would not have been able to buy any property without the scheme.

The NAO estimates this has resulted in around 78,000 additional sales of new-build homes as of December 2018. Around 81 per cent of all buyers supported by the scheme have been first-time buyers.

The ministry’s independent 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 (65,000 households) could have purchased a property they wanted without the scheme.

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

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 per cent of the property value.

This improved London take-up from 12 per cent, between the start of the scheme and December 2015, to 26 per cent of new-build sales between January 2016 and September 2018, but it is still lower than the rest of England (46 per cent 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 one per cent more than they might have paid for a similar new-build property bought without the support of the scheme.

But the NAO’s estimate of the premium is significantly less than other estimates, which range between five per cent and 20 per cent, 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 per cent more than an equivalent “second-hand” property (termed the new-build premium) and some buyers who want to sell their property soon after they purchase it might find they are in negative equity.

The Help to Buy 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 started.

NAO head Gareth Davies said: “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.

“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 [ministry] has recovered its substantial investment, we cannot say whether the scheme has delivered value for money.”

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