More than £10 billion has been loaned to first-time buyers and others purchasing new build properties through the Government’s Help to Buy: Equity Loan scheme.
Since its launch in 2013 up to September 2018 over 494,000 completions have taken place through Help to Buy, according to Government data. Most of these purchases were made by first-time buyers.
However, while the scheme has clearly supported many in achieving their dream of homeownership the publication of the information has also prompted some criticism of the scheme.
Modular housebuilder, Project Etopia highlighted, £10.7 billion, which is the value of the scheme up to September 2018, was almost as much as the entire police budget for England and Wales in 2018 to 2019, which was £12.3 billion.
Its founder, Joseph Daniels said: “Critics will naturally turn to the question of how many houses this sum of money could have created.
“There are arguments on both sides but it’s accurate to say that, with the latest average house price in England being £247,886, the total committed to Help To Buy so far would pay for more than 43,022 of these homes at full market value, which in reality would go a lot further if spent on building new stock from scratch.”
Scheme ending
However, he also pointed out the scheme had been ‘staggeringly popular’ and said that while Help to Buy had also come under fire for inflating property prices the Government was now calling a halt to the scheme.
In the last budget it was announced Help to Buy: Equity Loan would be available to first-time buyers only from 2021, when regional price caps would also be introduced. The scheme will close completely in 2023.
Housebuilder profits
The statistics were also released as housebuilder, Persimmons, announced bumper results which were driven strongly by the success of Help to Buy.
Gemma Harle, managing director of the Intrinsic mortgage network, part of Quilter, said most people’s instant reaction to the positive Help to Buy statistics was that the scheme was better enabling a generation to get their first foot on the ladder.
Indeed, the results showed those using the scheme had an average age of 28, compared to the national average of 30. Homes bought through the scheme were on average £20,000 cheaper.
However, that was not the full story. Harle explained: “When you take a deeper dive into Help to Buy, the scheme throws up some serious faults, one of which being that some housebuilders are enjoying tremendous results off the back off a tax-payer funded programme and subsequently paying their executive’s outrageous sums of money.”
Her thoughts were echoed by Mark Dyason, managing director of the specialist property broker, Thistle Finance, who described the high take up of the scheme as a “hollow victory”. He added: “The major property developers have done exceptionally well out of Help to Buy but at some point the supply of the drug will stop and they will have to go cold turkey.
Mortgage prisoners
Harle was also concerned that the scheme was leaving some first-time buyers as ‘mortgage prisoners’ – the term used to describe borrowers who, when their introductory mortgage rate finishes, cannot switch to a new deal and therefore are stuck paying the lender’s expensive Standard Variable Rate.
Harle said: “Those who first took out five-year fixed rate mortgages back when the scheme started are now having to both repay the equity loan and needing to remortgage in a higher interest rate environment.
“Added to this, there is distinct lack of remortgaging options from lenders in the market involved in the scheme leaving people trapped paying an expensive variable rate mortgage.”
She added: “Clearly the Government needs to incentivise companies to build more housing stock, however the Help to Buy scheme might not be quite the finished article and any other scheme put in its place when it comes to an end in 2023 needs to be able to cope with a very finely balanced market place, where simple schemes which on the face of it help some can have disastrous consequences for others.”
