Help to Buy  

Misplaced Help to Buy threatens "substantial losses"

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.