When it was introduced, the Help to Buy equity loan was built up as ’the biggest government intervention in the housing market since the Right to Buy scheme’. And given the number of buyers it’s helped, it has probably lived up to its billing. On average, the scheme has underwritten at least three times as many homes per year than previous homeownership schemes. This means just shy of 400,000 people will have used Help to Buy over the course of a decade before it closes in October.
The significant take up means Help to Buy is likely to turn in a significant profit for the government. While the final figure will be determined by how quickly people pay back their loans and the future path of house price growth, potentially the government look set to make in the region of £5bn before the costs of running the scheme.
Almost every buyer who chose to use the scheme instead of continuing to rent will have found themselves significantly better off. The average buyer who put down a 5% deposit, ended the five-year interest-free period with 30% equity in their home through a combination of price growth and paying down their mortgage. This put them in a strong position to re-mortgage without any government support. The scheme worked, particularly because of the scale of house price growth. How well it would have fared in a falling market remains unknown.
What next, is the big question. In the short-term, the two schemes that are currently up and running, First Homes and Deposit Unlock are unlikely to come close to helping the number of people that Help to Buy has. It probably means that housebuilders will have to diversify their customer base, with fewer homes sold to first-time buyers. Instead, there are likely to be more bulk deals to institutional investors while existing homeowners and private investors are likely to become increasingly important customers.
In terms of other homeownership schemes, Deposit Unlock which is backed by housebuilders, also allows buyers to purchase a new build home with a 5% deposit. But to help mitigate the risk to lenders, housebuilders pay for insurance to protect up to an additional 30% of the property’s value on behalf of their buyers. While it’s likely to help new buyers with small deposits onto the ladder just as Help to Buy did, ultimately, it’s much less generous than the equity loan scheme and will require salaries which are 10-15% higher. This also means take-up numbers are likely to be far more limited.
First Homes is a much longer-term play, aiming to transform affordable housing by offering buyers a permanent 30% - 50% discount on a new home. But as with any sort of changes to the planning system, it will take at least a couple of years until homes are being sold on the ground. Its shared equity nature and discounted purchase price means that the profile of buyers is likely to sit closer to shared ownership than Help to Buy.
The Help to Buy equity loan scheme was originally introduced in the wake of the 2007 financial crisis to halt falling homeownership rates and increase the number of homes built - both of which had tumbled in the wake of the downturn. While the scheme has had its critics, arguably it has delivered on both counts while generating a profit for the taxpayer. It wasn’t the first scheme of its nature and it’s unlikely to be the last.
But given that we are now less than a year away from the scheme formally ending, and just six months away from it only being available on homes which are already built, there’s increasingly likely to be a Help to Buy shaped hole left behind. While a replacement has probably been considered, the current strength of the market coupled with the government’s attention being focused elsewhere means realistically it’s unlikely to be substituted.
While the scheme is clearly no longer required to jumpstart the market, support for first-time buyers remains as essential as it was a decade ago. Given that Help to Buy is now largely self-funding (the receipts from loans being paid off more than equal new lending), an extension of the scheme would now be cost neutral to the government. The previous generation of first-time buyers has already paid to help the next one, if only the government would let them.
