Help to BuySep 17 2019

Misplaced Help to Buy threatens "substantial losses"

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Misplaced Help to Buy threatens "substantial losses"

The Help to Buy equity scheme could leave the government with a “substantial loss”, put buyers out of pocket, and has failed to benefit those it was designed to assist, the Public Accounts committee has found.

MPs raised concerns about the scheme in a committee report, published today (September 17), which concluded the value of the scheme was “uncertain”, it did not address wider issues in the housing market and its use could leave both buyers and the government out of pocket.

Through the government’s Help to Buy equity loan, buyers can borrow 20 per cent of the cost of a new build property — 40 per cent in London — from the government with no loan fees for the first five years of owning the home. This means buyers only need a 5 per cent cash deposit and a 75 per cent (55 per cent in the capital) mortgage to make up the rest. 

The initiative has helped thousands of borrowers buy property with more than 500,000 properties being bought via the scheme since it launched on April 1, 2013, according to data from the government.

But the committee’s report questioned whether the government’s investment in the scheme — which is expected to cost eight times its original budget at £29bn — was the most valuable use of the funds.

The committee found three fifths of those who took part in the scheme did not need its support and stated the housing department had accepted it had only benefitted one section of society — “those that are already in a position to buy their own home”.

MPs were also concerned uncertainty in the housing market meant there was a risk the department would not achieve a positive return on its investment.

Housing sector representatives had told committee members the housing market was unpredictable and the department could make a “substantial loss” on the scheme should house prices fall or interest rates increase.

Government loss could also be exacerbated by the fact consumers were redeeming their loans at a faster rate than predicted, the report stated, and the number of redemptions had been higher than Homes England initially expected every year by between 11 and 35 per cent.

The housing department’s return on its investment would be reduced by such redemptions as it would not benefit from properties increasing in value over time (as the value of the loan charges remains proportional to the property’s value) and the buyers avoided paying any interest if the loans were paid back within five years.

But some consumers were also vulnerable to losing out by using the scheme if they needed to sell their property soon after purchase because new-build properties have a “new-build premium”.

New builds typically cost around 15 to 20 per cent more than their equivalent ‘second-hand’ property so it is likely the value of a buyer’s property will fall by about a fifth as soon as they move in, meaning some borrowers could end up in negative equity shortly after purchase.

Although the committee found the scheme had increased housing supply by 14 per cent by giving developers the confidence to increase their rate of building, MPs were also concerned the government was not adequately prepared for a shortfall experienced by the market once the scheme is pulled in 2023.

Earlier this year fears that the housing market had become too reliant on Help to Buy were voiced when research showed the scheme had funded up to 97 per cent of new build sales in some regions.

Committee chair Meg Hillier said: “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 does not help make homes more affordable nor address other pressing housing problems in the sector such as the planning system or homelessness."

Ms Hillier added the scheme exposed both the government and consumers to significant financial risks, stressing better consumer protection needed to be built into similar schemes in the future.

Nick Sanderson, chief executive of Audley Group, said: “The scheme might have boosted housing supply, but it has done nothing to address other fundamental problems in the system. 

“Nothing is being done to free up the abundance of under-occupied housing stock in the UK, or help those who are living in those houses move to more suitable properties. 

“Initiatives like a stamp duty holiday for over 65s, that focus on those that have the power to bring movement to the housing market would mean fewer new homes were needed in the first place. The government needs to wake up to the real issue in the housing market and be brave enough to address them.”

A spokesperson from the Ministry of Housing said: “Help to Buy has been life changing for many first-time buyers across the country. In the last year 52,000 households have bought a home with support from Help to Buy equity loans, of which more than 43,000 were first-time buyers – the highest-ever annual total.

“However, we will always consider suggestions on how the Help to Buy scheme could work better.”

imogen.tew@ft.com

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