The first phase of the government’s Help to Buy scheme has failed in its objectives and was rolled out in a manner that “violated” Treasury rules demanding consideration of viable alternatives, a panel of MPs has claimed.
The Public Accounts Committee’s report into the equity loan phase, under which the goverment provides loans for low-deposit buyers of new build homes, was critical of the government’s controversial scheme.
Margaret Hodge, chair of the committee, said the government has “yet to demonstrate” that the scheme provides value for money, hinting that the committee thought it was rushed through.
The MPs also said while the scheme has proved popular in certain regions, it has failed in its objective as it has enjoyed less traction in London and the south-east where first-time buyers are struggling the most, with 6 per cent of equity loans being for purchases in the capital.
Under the first part of the scheme, launched in April 2013, the government provides equity loans on homes of up to £600,000 where buyers only need a 5 per cent deposit. A loan of up to 20 per cent means a borrower only needs a mortgage of up to 75 per cent.
Ms Hodge said while the committee supports its aims - improving access to mortgage finance, increasing housing supply and contributing to economic growth - the Department for Communities and Local Government “does not understand the overall impact of its housing strategy and the combined effectiveness of its different initiatives.”
The department committed to spending up to £10bn on supporting the scheme, but was in “violation of Treasury guidelines” by not carrying out any assessment of alternative, potentially more effective options before going ahead.
Ms Hodge said: “The department will not carry out a comprehensive evaluation of the scheme until 2015, by which time billions of pounds will already have been spent.
“That evaluation needs to ask three things: whether more people purchased properties than would have done without the scheme; whether builders built more houses than they would have built otherwise; and what effect the scheme could be having on house prices.”
She also warned future assessments of the scheme must looks at its impact on different regions. While the scheme has proved popular in areas that have “already seen regeneration or major housing expansion,” it had less traction in the areas that need it most, such as London and the south east.
The committee proposed that the department should assess the scheme’s effectiveness in different local and regional housing markets and tailor the scheme so it is effective in all regions. It added that the immediate risk was that buyers access the scheme with small deposits “which increases taxpayers’ exposure to risk”.
