1 The introduction and management
of the Scheme
1. On the basis of a report by the Comptroller
and Auditor General, we took evidence from the Department for
Communities and Local Government (the Department) and the Homes
and Communities Agency (the Agency) about the Help to Buy equity
loan scheme (the Scheme).[1]
2. The Department identified three barriers
to home ownership in its 2011 housing strategy: potential home
owners could not afford mortgage finance; mortgage lenders were
requiring buyers to have big deposits; and developers were not
building enough new homes. The Department introduced the Scheme
in April 2013 to: increase demand for new homes by making mortgage
finance more accessible and affordable; encourage developers to
build more new homes; and contribute to economic growth.[2]
3. The Department initially aimed to
advance up to £3.7 billion to help 74,000 households buy
a new home by 2015-16. The Government announced in the 2014 Budget
that it had extended the Scheme to March 2020, and would provide
an extra £6 billion to support the purchase of a further
120,000 homes.[3] Under
the Scheme, the Department makes equity loans to buyers of 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 raise the balance required for
the purchase by arranging a conventional repayment mortgage with
a bank or building society of, typically, 75% of the property's
value. The equity loan is interest-free for the first five years,
and is paid back by borrowers within 25 years, or when their mortgage
is paid back, for example if they sell their home. The Department
assisted the purchase of nearly 13,000 homes in the Scheme's first
nine months, of which some 89% were by first-time buyers.[4]
4. The Department and the Agency told
us that, in designing the Scheme, they drew on the operational
experience they had developed running similar schemes since 2006.
They explained that this experience meant that they knew what
delivery mechanisms would work. This experience influenced features
of the Scheme's design, including its size. At £3.7 billion,
the Scheme is much larger than predecessors, such as FirstBuy
and HomeBuy, and at £600,000 the cap on eligible property
prices is much higher. The Department also explained that it had
chosen to avoid factors that might limit the effectiveness of
the Scheme; for example, it had decided not to ask developers
to contribute to the equity loan, in contrast to earlier schemes.[5]
5. The Department and the Agency set
out to introduce the Scheme quickly. To support this, they re-used
delivery and administrative mechanisms already in place from similar
schemes. For example, the Department and the Agency were already
working with a network of agents in administering the HomeBuy
scheme. These agents are locally based companies, usually offshoots
of Housing Associations, which perform administrative tasks, such
as affordability checks on potential buyers, and process applications.
The Department has rebranded its existing network of HomeBuy agents
as Help to Buy agents.[6]
In July 2013, the Agency negotiated down the fee it pays agents
for administering each sale, from £1,000 per case to £600.
The Agency told us that it had now retendered for the Help to
Buy agents, and that the agents would be paid less than £600
in the future.[7]
6. In some important respects, however,
the Department did not follow good practice when developing the
Scheme. For example, HM Treasury told us that its guidance, set
out in the Green Book, states that it is good practice
to assess a range of options to achieve the intended policy objectives
when appraising any new policy initiative, and that this should
consider as many options as possible, including the option of
'do nothing'. The Department acknowledged that, in the case of
this Scheme, it had only appraised the option it had already decided
would be most effective, and that its business case for the Scheme,
which underpinned its decision to introduce the Scheme, did not
assess any alternative options. The Department explained that
its decision to go with its chosen option was influenced by its
prior experience and its desire to act quickly, but it could not
provide us with evidence that this option was the best way to
achieve its intended objectives.[8]
7. We also asked the Department what
lessons it had applied from evaluations of previous shared equity
schemes, to inform its implementation of Help to Buy. The Department,
however, could not refer us to any formal evaluation reports on
which it had drawn, despite having overseen several similar shared
equity interventions running back to 2006. The National Audit
Office reported that the Department had committed to evaluating
FirstBuy and HomeBuy Direct in 2013, but that the Department had
not undertaken the planned evaluations because of the speed with
which it had launched Help to Buy. The Department explained that,
although it did not have any evaluation reports available, it
had drawn on monitoring data as well as its previous operational
experience. It also asserted that evaluations would not have been
directly applicable, because Help to Buy has a different focus
from some of its other schemes, which meant that it could not
draw upon good quality evaluation evidence when designing the
Scheme.[9]
8. 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. For example,
the value of the portfolio will fluctuate as house prices change,
because the value of each loan at any point is based on a percentage
of the property's current value. Furthermore, the Department told
us that it anticipated a repossession rate of between 1% and 2%;
but if a home is repossessed, the mortgage lender would get its
money back first because the government only holds a second charge,
behind the lender.[10]
9. The Department agreed that managing
such a portfolio was new territory for both it and the Agency.
We have seen in our previous examination of student loans that
value for money depends on forecasting loan repayments and understanding
the likely cost of non-repayment to the taxpayer, as well as the
efficiency and effectiveness of collection arrangements. Although
Help to Buy equity loans are different to student loans in some
respects, many of the same principles apply. Both the Department
and the Agency will be required to monitor the Scheme for many
years to come. The Department acknowledged that both it and the
Agency would need to increase their capacity and skills to manage
the portfolio effectively.[11]
10. Government has in the past addressed
some of the risk associated with managing a portfolio of debt
by selling the investment portfolios to the private sector, as
it did with the final tranche of the old 'mortgage-style' student
loan book in November 2013. The Department said a potential sale
of the Help to Buy portfolio was not currently part of its plans,
but it did not rule out the possibility of selling the portfolio
in future.[12] The Department
and the Agency also acknowledged that there were more immediate
risks they needed to manage. These included the fact that some
buyers had accessed the Scheme with deposits of less than 5%,
which increased the taxpayers' exposure to risk. The Agency explained
that the number of such buyers—205 to December 2013—is
a very small proportion of buyers accessing the Scheme, less than
2% of completions at that point, and it told us that it would
continue to monitor this situation.[13]
1 C&AG's Report, The Help to Buy equity loan scheme, HC 1099 Session 2013-14, 6 March 2014 Back
2
Qq 23, 43, 64; C&AG's report, paragraphs 2, 1.1, 1.3 Back
3
Q 77; C&AG's report, paragraph 1.4; HM Treasury, Budget 2014, HC 1104, March 2014 Back
4
Q 12; C&AG's report, paragraphs 11-12 and 1.6-1.8 Back
5
Qq 4-5; C&AG's report, Figure 2 Back
6
Qq 4-5, 14, 26; C&AG's report, paragraph 3.14 and Figure 4 Back
7
Qq 35, 54-55; C&AG's report, paragraph 3.15 Back
8
Qq 3-4; HM Treasury, The Green Book: Appraisal and Evaluation in Central Government, 2003 Back
9
Qq 5-13; C&AG's Report, paragraph 3.3 and Figure 2 Back
10
Q 27; C&AG's Report, paragraphs 5, 1.7 Back
11
Q 57; C&AG's report, paragraph 3.27; Committee of Public Accounts, Student Loan repayments, Forty-fourth Report of Session 2013-14, HC 886, 14 February 2014 Back
12
Q 57; Committee of Public Accounts, Student Loan repayments, paragraph 7 Back
13
Q 26; C&AG's report, paragraph 3.25 Back
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