“Help to Buy will finally end in 2023. It’s good news, of course, but in some respects, it’s still not soon enough.”
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A measure first introduced by then Chancellor of the Exchequer George Osborne in 2013, the government’s Help to Buy scheme emerged in the midst of a developing housing crisis.
Home ownership was falling for the first time in a century; house prices had more than doubled since 2000; wages had been hit by the financial crisis; property affordability was in decline; and the Bank of Mum and Dad was now bailing out 66% of all first-time buyers.
Against this backdrop of data, the government’s Help to Buy programme was heralded as a potential saviour – giving aspiring homeowners an interest-free government loan worth up to 20% of a property’s value if the buyer opted for a new build.
The programme had one primary purpose: to give first-time buyers a leg up onto the housing ladder. By achieving this, and by also supporting existing homeowners to buy new builds, the theory was that demand for new builds would increase. George Osborne attested that, by increasing demand for new builds, the supply side of the housing market would correct itself; more houses would be produced to meet the increased demand.
The problems of Help to Buy
The intention of Help to Buy was good – to stimulate new supply within a housing market that had felt the brunt of the global financial crisis, and to inject fresh confidence and life.
But looking back six years on from its introduction, the legislation has failed to meet expectations.
For one thing, the scheme never bolstered supply to the extent that was promised. Prior to its introduction, the number of completed new builds in England totalled 108,190 in the 12 months to March 2013. Fast-forward to 2019, and that figure has only increased to 169,770 – far below what’s currently needed.
What small supply increases there have been over the last few years may simply be the result of a speeding up of new build approvals, or the opening up of some greenfield and brownfield land – rather than Help to Buy specifically.
Help to Buy also failed to reverse declining affordability. In fact, it made the situation worse. By attempting to artificially bolster the affordability of new build properties and adding more demand without tangibly increasing supply, the scheme actually made new build property far more expensive in real terms – especially for those who don’t qualify for the Help to Buy subsidy.
New builds should, according to the government’s plans, have become cheaper. But they didn’t. In fact, as a 2017 Morgan Stanley report suggests, any reduction in price through subsidy has been wiped out almost entirely by developers pushing up prices.
Helping those who don’t need it
In spite of scant evidence for its benefits, the scheme has persisted for a number of years now – and at significant cost to the treasury. Estimates suggest the bill for Help to Buy is already north of £10 billion, with four years left to run.
As it transpires, much of that expense hasn’t gone to those who needed it.
A recent report from the government’s own National Audit Office (NAO) suggests that over half of the people using the scheme could have purchased their home without support from it. By those numbers, it’s estimated that the investment has stimulated around 78,000 sales that otherwise wouldn’t have happened. As it turns out, it would have been cheaper to give those 78,000 purchasers a £10,000 cheque each.
The money has also gone to housebuilders: at the nine biggest firms, dividends have shot up to a combined £2bn in the last financial year. Given the aforementioned price hikes on new builds, it’s easy to see why.
Moving attention elsewhere
Help to Buy will finally end in 2023. It’s good news, of course, but in some respects, it’s still not soon enough.
In light of the continued challenges facing the property market – poor affordability, weak transaction volumes, and rapidly increasing rents, to name a few – there are other areas where investment and/or lower taxes are desperately needed.
One such example is stamp duty. Cutting rates would have numerous benefits, but in short, would make the market far more efficient than it currently is. Lower rates directly support homeowners by allowing them to move homes with lower financial overheads.
Another area in need of support is buy-to-let. With the rise of renting in the U.K., it’s something that will need focused attention in the coming years. This is where Help to Buy can make some progress at least. The relaxation of its singular focus onto all properties, not just new build, would offer some of that required support.
Any measure of this sort should include resale homes; the vast majority of homes in the UK aren’t new builds, and initiatives to aid buyers and sellers of existing properties should surely not be excluded from the Help to Buy initiative whilst it’s still running. If the bill for this is too high, might funding be possible from private-sector investors?
Final thoughts
All of these make a less interesting umbrella headline for the government to sell, but it’s not one single measure that’s needed here – rather, a package of ideas and a blend of several solutions, that between them add up to a greater whole. Clearly, the government must consult closely with industry experts if they wish to produce well-thought out and effective legislation in the property space.
But also, there’s a here and now opportunity to act. The fear is that meaningful action won’t follow until Help to Buy finally comes to an end. That, though, is four years away. And, bluntly, four years is too long to wait for legitimate market support.