Commons Select Committee Critical Of Help To Buy’s Value

The Commons Select Committee has deemed the value of Help to Buy to be uncertain following a fairly critical report.

Although the report acknowledged that Help to Buy achieved its original purpose of re-stimulating a stagnant market by boosting home ownership and developer confidence between 2013 and 2016, the estimated £29 billion tied up in equity loans creates an uncertain and precarious position for both lender and borrower at the mercy of market conditions and interest rates.

This uncertainty also permeates into a confusion over its return on investment. Forecasts suggest that the Government will make a positive cash return on the equity loan investment. However, more buyers have redeemed their loans within the first five years of ownership than expected.

50% of buyers, using the scheme upon launch in 2013, have already redeemed their loans before any interest was owing. If this trend continues and inflation is taken into account, the scheme could make a small loss.

Conversely, there is a fear that many people have used the scheme to stretch their affordability, buying homes slightly beyond their means. The Committee worried that the unregulated nature of the loans places consumers at a great risk, especially when the loan’s interest free period expires.

The report claims that Help to Buy loans ‘are a significant financial commitment for buyers.’ Whilst increasing house prices between 2013 and 2018 has helped the early users of the scheme achieve equity in their homes, even after the 20% ‘new home premium’ is taken into account, many adopters in the current market with slowly rising house prices may be in negative equity once the loan’s 5-year interest free period lapses.

Paying interest whilst living in a property worth less than originally paid could trap home owners and considerably impact on their finances. The Committee has recommended the Department examine the ‘new-build premium’ and the impact it has on home owners in addition to putting robust consumer protection arrangements in place.

The report also concluded that Help to Buy has helped too many people who could afford to purchase property without the scheme. In total, over three fifths of Help to Buy users were in a position to buy property without the scheme.

Help to Buy has become a fundamental driving force behind the Government’s push to build 300,000 new homes per year by the mid-2020s. The report claimed that the loan book alone suggests the scheme has lent the equivalent of a medium-sized building society.

Despite investing so much time and effort into Help to Buy, the report claims that the Government has failed to consider the reduction in house building once the scheme ends in 2023 and even the impact after it restricts the use to first-time buyers when it starts winding down in 2021.

The Government should consider how they are going to offset the gap once the Help to Buy incentive to build is withdrawn.

The Committee’s Chair, commented:

“Help to Buy has certainly increased the supply of new homes and boosted the bottom line of house builders. But it has also tied up a large sum of money, forecast to be nearly £29 billion in cash terms by the time it concludes in 2023, making the value of what has been achieved uncertain.

“While many people have been helped to buy properties, who would have not otherwise been able to, an even larger group of buyers did not need its financial support.

“Help to Buy, as the Department acknowledged, only benefits those in a position to buy their own house in the first place. It does not help make homes more affordable nor address other pressing housing problems in the sector such as the planning system or homelessness”.

“The scheme exposes both the government and consumers to significant financial risks were house prices or interest rates to change.  Better consumer protection needs to be built into similar schemes in the future”.

What legacy will Help to Buy leave behind? Is it the driving force behind the construction industries recovery? Or a scheme without a clear exit plan failing to address the real issues in the housing crisis?

Today's Conveyancer