Help to Buy has been given a hard time by the press. Critics claim that it only fast tracks the privileged to home ownership while inflating prices for everyone else. Are these damaging press reports threatening a scheme that has been instrumental in increasing housing supply? We set the record straight.
Far from elbowing average earners off the property ladder, Ruth Barnes, head of residential development sales at Winckworth Sherwood, argues that it is increasing affordable housing. “Registered Providers are increasingly complementing their suite of affordable options by offering homes under Help to Buy, with profits made from sales being reinvested into delivering future homes,” she said. “This enables housing associations to deliver a variety of affordable options, meaning that more and more people who need to access their products can do so.”
Nonetheless, data from Really Moving shows that first time buyers spend 36% more when buying a new build compared to a pre-existing property. On top of that, those who use Help to Buy pay an additional 8% compared to those who just buy a new build without using the scheme.
However, Martin Skinner, Chief Executive at micro-apartment specialist Inspired Homes, says that the scheme has allowed First Time Buyers to settle in properties that could have otherwise gone to wealthy landlords. He said, “It’s easy to criticise Help to Buy when we see the larger housebuilders reporting record profits, but they have the benefit of building on land that they acquired on the cheap in the aftermath of the financial crisis. All of them are now reporting more challenging times ahead.
“New-build homes have always commanded a premium compared to second hand homes. Because of this, lenders typically require significantly larger deposits for new homes, which had the effect of steering first-time buyers to the second-hand market, leaving new homes to go to investors or wealthier owner occupiers.”
Recognising this, the Government introduced the Help to Buy Equity Loan to give first-time buyers the larger deposits required to get a mortgage on a new home, supporting homeownership whilst encouraging new supply.
Help to Buy has had the desired effect with the number of first-time buyers at its highest for a decade, 81% of them using Help to Buy. Supply has also increased. Last year, over 217,000 new homes were completed, again the highest in a decade, and the industry is on track to deliver a similar number this year.
That said, Help to Buy is not the only scheme housebuilders can utilise. Elaine Stratford, Sales and Marketing Director at Bewley, said, “Whilst Help to Buy has a role to play in the new homes market, it is both relevant and important to recognise it is not the only tool available to assist purchasers.
“Bewley, for example, offers its own part exchange and easy move schemes both of which are examples of other tools purchasers can utilise in order to access private home ownership. Alongside this, many lenders are beginning to relax the criteria they require in order for applicants to obtain a 95% mortgage, without the need to utilise HTB.”
Help to Buy, however, remains a firm favourite with First Time Buyers. Lawrence Bowles, Savills research analyst, said, “Our analysis shows that both the rate of take up and the size of equity loans being given are growing.
“The government granted 48,244 equity loans in the twelve months to the end of Q1 2018. That’s over 20% up on the previous year and almost two and a half times (+146 per cent) the number of loans granted in the first year of the scheme.
“Help to Buy appears to have helped increase the number of homes being built in what has been a slower moving market. Historically, the rate of new housebuilding has moved in line with the number of transactions – developers will only build as many homes as they think they can sell.
“In the years since Help to Buy that relationship has broken down, helping to insulate housing delivery from its traditional reliance on a high transaction market. When Help to Buy was announced we were building one new home for every 6.4 transactions. In the first quarter of 2018, there was one new home for every 4.5 sales. While housing transactions have marked time for the last year, housing delivery has continued to rise.”
But we’re not just seeing more people using Help to Buy. The loans are getting bigger. Back in the first quarter of 2014, the average Help to Buy loan in England was £42,145. In Q1 2018, it was £65,495. That’s a 55% increase.
Buyers will be expected to pay a 1.75% fee on that loan after five years, increasing with inflation. At the maximum loan size in London, those households will need to stump up another £4,200 a year five years into their ownership. This could come as a nasty shock.
This is one of the many reasons critics have called for the scheme to be reinvented, with a view to helping those who couldn’t afford to get on the housing ladder without it.
“Without any restrictions on income, Help to Buy is open to exploitation from those who don’t necessarily need it, but with the £600,000 price cap, for the most part, those using it are on incomes below £100,000,” said Skinner. “Certainly, the majority of our buyers are earning lower, average incomes and otherwise would not be able to get onto the property ladder.
“There is a lot of talk about Help to Buy inflating prices, but any sales agent would tell you that price premiums are kept in check by mortgage valuations. The increase in down valuations post Brexit – one in five compared to one in 20 previously – means that the new-build premium is now falling.”
While Help to Buy has certainly proved effective, it is treating the symptoms of an undersupplied market rather that the root cause.
Richard Beresford, chief executive of the NFB, said, “Right to Buy and Help to Buy require a rethink. However, if you want to get more homes built, you need an efficient planning and plan-making process. The planning process gets permissions into the hands of housebuilders and identifies where homes will be built. When it fails, so do our efforts to tackle the housing crisis.”
There is no doubt that housebuilders have become reliant on Help to Buy. The question now is, should the market continue to depend on it?