Three-fifths of homebuyers could have bought a property without the support of Help to Buy, but not necessarily a property they wanted.
While the Help to Buy Schemehas increased home ownership and housing supply many of those using the scheme would have been able to buy a home anyway, a report by the National Audit Office (NAO) has found.
Independent research from the Ministry of Housing, Communities and Local Government (MHCLG) showed around three-fifths of homebuyers could have bought a property without the support of Help to Buy, but not necessarily a property they wanted.
Gareth Davies, the head of the NAO, 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 department has recovered its substantial investment, we cannot say whether the scheme has delivered value for money.”
The scheme was introduced by what is now, theMinistry of Housing, Communities & Local Governmentin April 2013 to increase both home ownership and boost housing supply, by helping people to get mortgages and thereby, create more new build homes.
Over a third of borrowers (37%) would not have been able to buy any property without the scheme. The NAO estimated 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, while almost a third of all buyers (65,000 households) could have purchased a property they wanted without the scheme.
However, as the scheme is demand led, and all eligible applicants are given equity loans, MHCLG did not set itself targets for either of these measures. The scheme is the MHCLG’s largest housing initiative by value.
Homes England delivers the scheme. By December 2018, it made around 211,000 loans amounting to £11.7bn.
Between the start of the scheme in April 2013 and September 2018, 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.
Around 4% of the 211,000 buyers who had used the scheme by December 2018 had household incomes over £100,000. The MHCLG’s said 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% 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 which saw 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 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 £25bn in cash terms. MHCLG expects to recover its investment by 2031-32 and make a positive return overall and redemptions are running ahead of expectations.
However, the NAO report highlighted that the MHCLG investment is exposed to significant market risk as it is sensitive to house price changes and the timing of buyers repaying loans.
There is less need for the scheme now that higher loan-to-value mortgages are more available, and the MHCLG plans to end the scheme in 2023.
The NAO recommended that since the MHCLG 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.
This should include a potential influence on the new build premium, and identify lessons learned for any future interventions.
