"The scheme has also exposed the government to significant market risk if property values fall, as well as tying up a significant public financial capacity."
Many buyers using the Help to Buy scheme would have been able to buy a home anyway, according to a report by the National Audit Office.
According to the Ministry of Housing, Communities & Local Government’s own research, 37% of households would not have been able to buy any property without the scheme. The NAO estimates this has resulted in around 78,000 additional sales of new-build homes as of December 2018.
The Department’s independent research also found that around three-fifths of buyers could have bought a property without the support of Help to Buy, but not necessarily a property they wanted. Almost a third of all buyers (65,000 households) could have purchased a property they wanted without the scheme.
The NAO’s analysis has found that buyers who have used the scheme have paid less than 1% more than they might have paid for a similar new-build property bought without the support of the scheme.
The NAO’s estimate of the premium is significantly less than other estimates, which range between 5% and 20%, which it says do not compare similar properties and so do not accurately assess any premium paid by those using the scheme.
However, new-build properties typically cost around 15-20% more than an equivalent ‘second-hand’ property (termed the new-build premium) and some buyers who want to sell their property soon after they purchase it might find they are in negative equity.
By 2023, the net amount loaned through the scheme is forecast to peak at around £25 billion in cash terms. The Department expects to recover its investment by 2031-32 and make a positive return overall and redemptions are running ahead of expectations.
However, the NAO report highlights that the Department’s investment is exposed to significant market risk as it is sensitive to house-price changes and the timing of buyers repaying loans.
Gareth Davies, head of the NAO, commented: “Help to Buy has increased home ownership and housing supply, particularly for first-time buyers. However, a proportion of participants could have afforded to buy a home without the government’s help. The scheme has also exposed the government to significant market risk if property values fall, as well as tying up a significant public financial capacity.
“The government’s greatest challenge now is to wean the property market off the scheme with as little impact as possible on its ambition of creating 300,000 homes a year from the mid-2020s. Until we can observe its longer-term effects on the property market and whether the Department has recovered its substantial investment, we cannot say whether the scheme has delivered value for money.”
Fran Boait, executive director of Positive Money, added: “It’s now beyond clear that rather than helping those who can’t afford to buy a home, Help to Buy has mainly been a subsidy for a housing bubble, benefiting property developers and existing homeowners.
“Instead of policy interventions like Help to Buy which incentivise lending towards property, the Treasury and the Bank of England should introduce measures which encourage investment towards productive economic activity. Only this wholesale shift in investment will allow a rebalancing of the UK economy away from unsustainable asset-price led growth and begin to make homes affordable.”