Help to Buy  

Govt exposed to 'significant risk' through Help to Buy

About one in 10 buyers had a salary of more than £80,000 while one in 25 exceeded the £100,000 mark.

Although unclear if this was the target demographic for the scheme, the NAO regarded this as an acceptable consequence of the scheme being widely available and stated buyers in general had been able to buy faster and borrow more money.

About four-fifths of buyers reported that the scheme had enabled them to buy a property sooner while buyers took out mortgages and equity loans that together were typically about four and a half times their annual income, increasing to more than six times in London.

By comparison, first-time buyers generally take out mortgages three and a half times their annual income.

The review found developers profited well from the scheme. The scheme supports five of the six largest developers in England and the profits of all five have increased since the start of the scheme.

Since the scheme's inception, total combined housing sales for the five firms have increased by more than 50 per cent, the NAO found.

The office’s evaluation found that some 5 per cent of buyers who had bought in the first 11 months of the scheme were in arrears — totalling about £54,000 of loans — and in most cases, this was because arrangements were not set up when the loan was issued.

From September 2016, this was addressed by setting up a direct debit at the start of the loan.

Last month, warnings were renewed about a crunch in the Help to Buy space as more borrowers using the scheme faced charges for the first time while others saw theirs hiked considerably. 

The review concluded that the government’s greatest challenge was to wind down the scheme and minimise negative effects on the housing market.

Fears have been growing lately that the housing market has become too reliant on Help to Buy as research showed the scheme had funded up to 97 per cent of new build sales in some regions.

Commenting on the review, Fran Boait, executive director of Positive Money, said: "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."

But Sam Curtis, regional director at Loan.co.uk, said the report was "quite positive".

He said: "Realistically, people will generally ride out being in negative equity until the housing market bounces back because they physically can’t afford to sell, so government risk is mitigated by this. It may, however, take longer for the government to tie up the money."