Rishi Sunak is reportedly planning to relaunch Help to Buy, the £29bn government-funded equity loan scheme which critics argue inflated house prices, handed bumper profits to housebuilders and was mostly used by higher earners who didn’t need it. The policy is apparently being considered as a way to help first-time buyers at a time of high interest rates and distended prices. But there is a wealth of evidence that Help to Buy would only compound the problems in the housing market.
In 2013 the then Chancellor, George Osborne, was faced with an economy still in recovery after one of the longest and deepest recessions in living memory and a central bank that, following said recession, had suddenly become very skittish in its approach to credit. Osborne thought he had a solution.
The Help to Buy scheme was designed to kill two birds with one stone: to help first-time buyers onto a housing ladder that was increasingly difficult to reach, thanks to rising prices and new Bank of England rules that limited the amount people could borrow, while at the same time controlling house-price growth by boosting housebuilding, which had dropped precipitously during the financial crisis.
Help to Buy – a rehash of Osborne’s previous First Buy scheme – came in two parts: an equity loan scheme, which allowed people to borrow 20 per cent of the value of a house from the government to use as a deposit, and a mortgage guarantee scheme, under which the government acted as a guarantor on high loan-to-value mortgages.
The scheme was originally designed to run for three years, with an estimated cost across both parts of £15.5bn. A decade later, and having gone through several more iterations (including a change that allowed Londoners to borrow up to 40 per cent of the value of a house, and a more recent one that limited it to new-builds only), having cost £29bn and having helped more than 340,000 households onto the housing ladder, Help to Buy is finally due to be wound up. Housebuilders, though, have other ideas: this weekend the Home Builders Federation (HBF) urged the Treasury to rethink its plans to end the scheme, pointing out that “the average deposit of a first-time buyer in 2021-22 was £43,693, an amount that for many is simply unachievable”.
It is an audacious argument. On the one hand, the scheme has achieved one of its aims: just over 210,000 new homes were built in 2021-2022, up from less than 125,000 in 2012-2013 (although still far from the government’s 300,000-a-year target). But it has failed to achieve its other goal: home ownership in England has hovered around 64 per cent for the entire decade that Help to Buy has been available, while the average age of first-time buyers has climbed steadily, from 30 in 2013 to 34 in 2021. Then there are those spiralling deposits, which have risen in tandem with house prices, which grew 74 per cent between 2013 and the end of 2022. So much for Osborne’s plan to “turn generation rent into generation buy” – HBF’s much-lamented deposits are probably so high in part because of Help to Buy, not in spite of it.
Parliamentarians have admitted the scheme’s many failings. Last January a House of Lords committee concluded that it “inflates prices by more than its subsidy value in areas where it is needed the most”, adding that “this funding would be better spent on increasing housing supply”. This followed a 2019 report from the National Audit Office (NAO) which found that 63 per cent of those who bought under the scheme could have bought without its help.
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“What it did do was help a lot of people buy three- or four-bed houses rather than smaller properties,” concedes Neal Hudson, a UK housing market analyst and one of the founders of the researchers BuiltPlace. Analysis by BuiltPlace has found that the average income of buyers using the scheme in London at the end of 2021 was £61,517; across the rest of England it was £48,440. That the housing ladder has become so out of reach that it takes a government scheme to help people on those sorts of salaries to climb the first rung is, Help to Buy’s critics point out, deeply concerning.
Meanwhile, housebuilders have grown fat off the profits they gained from the scheme. The share prices of Persimmon and Barratt Homes, two of Help to Buy’s biggest beneficiaries, grew almost 300 per cent between the beginning of 2013 and their peak in April 2021; their rival Taylor Wimpey grew a mere 120 per cent. “The average price of the property [housebuilders] sell has increased rapidly, but the cost of the land that they buy, and how much it costs them to build the homes, has not increased anywhere near as quickly,” says Hudson. “So all of the increase in house price has been captured within housebuilder profit.”
During the Help to Buy years the government, desperate for the number of homes being built to increase, has been guilty of turning a blind eye to bad behaviour among housebuilders. “We had general quality issues – Bovis were probably the ringleaders there,” says Hudson. “We had Persimmon extracting massive bonuses [in 2018 its chief executive, Jeff Fairburn, was awarded a £110m bonus], we had Taylor Wimpey and others involved in a leasehold ground rent debacle. The housebuilders did not do themselves any favours.”
But the good times are over: housebuilders’ shares have fallen in the wake of rising mortgage rates and falling demand, and rising interest rates mean credit doesn’t come cheap any more. Even if the government wanted to resurrect Help to Buy, it would be would be far more expensive than it has been used to.
But there are risks to ending the scheme. This weekend the HBF warned – and others, including Hudson, agree – that the end of the scheme is likely to bring about a drop in the number of new homes being built. “What we probably should have done is wean the housebuilders off of it quite a long time ago, maybe back in 2016,” says Hudson.
The reality is that Help to Buy was a badly thought-through attempt by Osborne to have his cake (rising house prices, which kept his voters happy) and eat it (boasting that he was helping first-time buyers onto the housing ladder), which ultimately became “a tool to help shareholders and housebuilder executives extract money from people struggling to buy their first home”, says Hudson. Creating it in the first place was a bad idea: to rehash it yet again would be a mistake.
This article was originally published on 1 February. It has been updated with the latest information following reports of Sunak planning to relaunch Help to Buy.
[See also: A generation locked out]