Govt's Help To Buy scheme may leave borrowers 'stuck'

In data published yesterday (May 11), the department for levelling up, housing and communities said 8,913 properties were bought with an equity loan under the scheme between October 1 and December 31, 2021.

This figure is down 41 per cent on the same quarter in 2019 before the pandemic, causing some experts to also highlight “just how few" first-time buyers are actually supported by the scheme today.

“With rates rising, incomes stagnating, and a lot of Help To Buy loans maturing this year, and for the next couple, many borrowers could find they aren't in a position to remortgage and pay off the government loan," said Mansfield-based broker Lewis Shaw.

I had a client this week who originally borrowed £36,000 through the scheme and…now they have to pay back £48,000.Derbyshire-based broker Paul Neal 

“This will mean one of two things: either sell up and move somewhere else or get stuck paying interest on the Help to Buy element until they can repay that debt. So many people have been fooled into using Help to Buy.

"When these chickens come home to roost, the levelling up department will be flattened."

The scheme allows the government offer up to 20 per cent of a newly built house or flat’s value (40 per cent in Greater London) in the form of an equity loan.

It has attracted much criticism over the years, with some suggesting developers and the government have been the only true beneficiaries of it.

A House of Lords report published earlier this year found the scheme had pushed up house prices in England and failed to “provide good value for money” for the taxpayer.

Derbyshire-based broker Paul Neal said if £22bn is what the government has lent, what will be more interesting is what is going to be repaid. 

“I had a client this week who originally borrowed £36,000 through the scheme and over the past five years their property's value has increased and now they have to pay back £48,000,” said Neal.

“That's £12,000 over a five-year period. Now, times that by 355,634 properties.” This equation would amount to £4.3bn.

Now, with interest rates rising and double-digit house price growth only continuing into this year, these repayments will only be getting bigger for borrowers in the scheme.

Managing director at Belper-based Peak Mortgages and Protection, Rhys Schofield, agreed the government will be making big returns from the scheme.

“With house prices growing at, say, 10 per cent a year the government is doing very well out of the scheme, too,” said Schofield.

“Their value of the share they have in people's homes has also gone through the roof."

The government needs to plough its energy into building more housing stock rather than more schemes as this will truly go to the root of the issue.Mortgage expert at Quilter, Karen Noye

Some experts have been quick to point out the difference in value of homes supported by the government’s scheme versus the average house price today.

Mortgage expert at Quilter, Karen Noye, said: “While the scheme is well meaning, the figures show just how few first time buyers are actually supported by it. 

“House prices have soared dramatically over the past couple of years, yet the mean value of a Help to Buy purchase price remains at just £175,849 compared to an average first-time buyer house price of £228,627 and a national average house price of £274,712.”

Noye argued the government needs to plough its energy into building more housing stock, rather than into more schemes which will not truly go to the root of the impenetrable housing market facing first-time buyers.

In response to criticism, housing minister Stuart Andrew Help to Buy has boosted the annual number of first-time buyers to "a 20 year high".

FTAdviser also understands the latest independent evaluation of the Help to Buy scheme found no evidence of a "significant impact" on prices overall, and that a 2019 National Audit Office study also found no evidence Help to Buy was pushing up new build prices. 

ruby.hinchliffe@ft.com