Conclusions and recommendations
1. The Department introduced the
Help to Buy equity loan scheme in April 2013, with the objectives
of increasing demand for new homes, making mortgage finance more
accessible and affordable and encouraging developers to build
more new homes. Under the Scheme, the Department makes equity
loans to buyers financing up to 20% of the purchase price of newly-built
properties that cost £600,000 or less, which supplements
the buyers' own deposit of normally at least 5%. Buyers then raise
a repayment mortgage of, typically, 75% of the property's value.
The equity loan is interest-free for the first five years, and
is paid back within 25 years, or when borrowers redeem their mortgage,
for example when they sell their home. The Department initially
aimed to spend up to £3.7 billion to help 74,000 households
buy a new home by 2015-16. In the 2014 Budget the Government decided
to extend the Scheme to March 2020, and was providing an extra
£6 billion to support the purchase of a further 120,000 homes.
The Scheme is administered by the Homes and Communities Agency
(the Agency), through its network of Help to Buy agents.
2. The Department managed the
Scheme's implementation effectively and got it up and running
quickly. The Department and the Agency built on their experience
of running previous home equity schemes, such as FirstBuy, to
implement the Help to Buy equity loan scheme. For example, they
used delivery and administrative mechanisms already in place from
similar schemes, for example rebranding the existing network of
HomeBuy agents as Help to Buy agents. As a result, the Scheme
was put in place quickly, and the Department had supported nearly
13,000 completed sales in the first nine months to December 2013.
In July 2013, the Agency successfully negotiated down the fee
it pays agents for administering each sale, from £1,000 per
case to £600, and it told us that it has since secured a
further reduction in the fee.
Recommendation:
The Department must:
· Maintain downward pressure
on the Scheme's costs, and
· Make full use of the
skills and experience it has gained from running this and other
similar schemes when implementing its future programmes.
3. Before introducing the Scheme,
the Department did not consider alternative ways to deliver its
objectives, which goes against HM Treasury guidance. HM Treasury
states that it is good practice to assess a range of options to
achieve the intended policy objectives when appraising any new
policy initiative. The Department acknowledged that its business
case for Help to Buy, which underpinned its decision to introduce
the Scheme, did not contain any such assessment of alternative
options. Yet the Department will now spend nearly £10bn supporting
this scheme up to 2020. The Department cannot say whether its
chosen Scheme is the best way to achieve its intended objectives
of increasing access to mortgage finance, increasing housing supply
and contributing to economic growth.
Recommendation:
In future, the Department must follow the guidance in the
HM Treasury Green Book, by assessing a range of alternative options
and presenting this analysis in its business case, to ensure it
selects the best option when launching new schemes.
4. Managing this Scheme will
bring new challenges for the Department and the Agency, creating
both risks and opportunities. The Scheme creates a medium-
and long-term risk to the Department by building a £10 billion
portfolio of equity loans that will require careful management.
Managing such a portfolio is new territory for both the Department
and the Agency, and the ongoing monitoring required will create
a heavy administrative burden for both organisations, potentially
over decades. Government has sold similar investment portfolios
to the private sector in the past, such as the final tranche of
the old 'mortgage-style' student loan book in November 2013. Though
the Department said it had no current plans to follow suit, it
did not rule out the possibility of selling the Help to Buy portfolio
in the future. The Department and the Agency also acknowledged
that there are more immediate risks, particularly the fact that
some buyers have accessed the Scheme with deposits of less than
5%, which increases the taxpayers' exposure to risk.
Recommendation:
The Department and the Agency must set out how they will
protect the taxpayer and ensure they have the skills and capacity
both to monitor and manage the loan portfolios effectively in
the short and the longer terms. They need to demonstrate how they
will maximize repayment and how they will respond to changing
commercial circumstances.
5. The Department should be mindful
of the need to demonstrate that the Scheme is value for money
to the taxpayer. We welcome the Department's commitment to
a full evaluation of the Help to Buy equity loan scheme in 2015,
particularly as the Department has failed in the past to conduct
proper evaluations of similar schemes' impact on the demand for,
and supply of, new housing. We expect this evaluation to address
fundamental questions about the Scheme's impact and its value
for money, including whether more buyers purchase properties than
would have without the Scheme, whether builders build more houses
than they would have built otherwise, and what effect the Scheme
could be having on house prices. The Department has made some
early estimates of these factors.
Recommendation:
For its planned evaluation of the Scheme, the Department
must develop a robust methodology to assess the Scheme's impact
on both demand for, and supply of, new homes. To do so, it must
collect sufficient data directly from buyers to quantify how many
would not have bought a property without the Scheme, and from
builders on how many additional homes they are building because
of the Scheme.
6. In any future assessment of
the Scheme, the impact on each region of the Scheme should be
examined in detail. The Department did not set regional objectives
for the Scheme, but evidence from the first nine months of operation
suggests that it is working differently in different parts of
England. It is more popular in the North and Midlands, and in
areas that have already seen regeneration or major housing expansion,
for example, Milton Keynes. It has had much less traction in London
and the South East (only 6% of equity loans made have been for
properties in London), despite the fact that these are the regions
with the greatest need for new housing.
Recommendation:
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.
7. The Department has not evaluated
the combined effectiveness of its various interventions to address
housing market failures. The Department acknowledged that
there are a wide range of complex problems in the housing market,
and it explained that Government only intervenes where
it thinks there is a market failure. The market has failed consistently
for many years to supply enough new homes to meet both need and
demand. This Scheme supports only a relatively small proportion
of the market, and other fundamental housing market problems are
beyond its scope. The Department has a number of other initiatives
that address other market failures, for example the New Homes
Bonus, through which it makes non-ring-fenced payments to local
authorities for every home added to the council tax register.
The Department, however, does not yet know what the combined impact
of its initiatives will be on increasing the supply of new homes.
Recommendation:
To understand how it can improve its effectiveness in stimulating
housing supply where it is needed, the Department should carry
out a wider and integrated evaluation, assessing the combined
impact of its major interventions in the housing market.
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