1Performance of the scheme
1.On the basis of a report by the Comptroller and Auditor General, we took evidence from the Ministry of Housing, Communities & Local Government (the Department) and Homes England about the Help to Buy: Equity Loan scheme in England.1 We also took evidence from the Emeritus Professor of Housing Economics at the London School of Economics, from the Home Builders Federation, and from the former Chair of the Housing and Finance Institute.
2.The Department introduced the Help to Buy: Equity Loan scheme in 2013 to help people who could not otherwise afford mortgages to buy their own home. Property sales fell following the financial crash of 2008 and the consequent tightening of regulations over the availability of high loan-to-value and high loan-to-income mortgages. The scheme enables buyers of new-build properties, valued up to £600,000, to receive an equity loan of up to 20% (40% in London) of the market value of the property, interest-free for five years. The loan must be paid back in full on sale of the property, within 25 years or in line with the buyer’s main mortgage if this is extended beyond 25 years. The scheme also aims to increase the rate of house building, by stimulating developers to build more to meet the increased demand for new-build properties.2
3.The current scheme is not means-tested and is open to both first-time buyers and those who have owned a property previously. It is demand-led and all eligible applicants are accepted onto the scheme. Demand for the scheme exceeded initial expectations, leading the Department to extend the scheme in 2015 beyond its planned 3 years, to March 2021. A new scheme, which will follow on immediately from the current scheme for two years to March 2023, will be more targeted and less generous. It will be restricted to first-time buyers and will introduce lower regional caps on the maximum property value, while remaining at £600,000 in London.3
Confidence within the housing market
4.The housing market consists of large developers with national reach, as well as many small and medium-sized local developers, of which around 1,600 have used the scheme to date. We heard from the Department how there has been a recent increase in the number of very small developers that are using the scheme. Professor Whitehead and the Department told us that Help to Buy has been more successful than previous schemes with similar aims in getting small and medium sized developers to participate.4
5.The scheme was introduced in 2013 when the house-building sector was in a very poor state following the financial crash in 2008. The Home Builders Federation told us that, in 2012–13, housing completions were at their lowest rate since the second world war. We heard from the sector representatives that the scheme had an immediate positive impact, increasing the confidence of potential homeowners to buy, and thereby increasing developers’ confidence to build more. The new-build market has picked up, unlike the market for existing homes which remains sluggish. The Home Builders Federation credited the scheme with contributing to the 80% increase in housing supply since 2012–13, and told us that Help to Buy was the only one of the government interventions in the housing market that had had a real impact in increasing housing supply. The Department confirmed it regarded the scheme as having had a strong impact on the sale and supply of new-build properties.5
6.The Department’s second evaluation of the scheme, published in October 2018, concluded that it had increased the rate of house building by 14.5%. Professor Whitehead explained that the evaluation assumed one additional property sale for each Help to Buy transaction by a household that could not have otherwise bought a property. However, she told us that each Help to Buy sale potentially led to two or three additional sales, meaning the impact on housing supply could in fact be higher. The Department told us that the scheme had performed well, and that the increase in supply was higher than its original forecasts for the scheme, and was better than the number required for the scheme to break even. It explained that it had not, however, set targets for the required increase in supply, as the scheme was demand-led.6
7.The Department told us that some 2,000 developers had used the scheme, of which 60% were still using the scheme at the time of our evidence session. Homes England told us that it was working closely with small and medium-sized developers to make the scheme as accessible as possible for them. About 1,600 of the developers that joined the scheme have built and sold 10 or fewer homes per year through the scheme. The Department told us that the scheme had particularly helped small and medium-sized developers, and that the numbers of smaller firms that had used the scheme had increased significantly in the last few years.7
The scheme’s added value
8.The National Audit Office reported that, by December 2018, the scheme had supported around 211,000 households to buy properties, through loans totalling £11.7 billion. The Department’s most recent evaluation of the scheme, published in October 2018, found that some 37% of buyers could not have bought a property at all without the support of the scheme.8 oHoThis implies that around three-fifths of buyers did not need the support of the scheme to buy a property. However, Professor Whitehead, one of the team that the Department commissioned to evaluate the scheme, told us that people who technically did not need the scheme in order to buy a property may not actually have bought. She told us that research by the Organisation for Economic Co-operation and Development (OECD) found that people who could afford to buy properties were not doing so because of concerns over wider economic conditions. She credited the scheme with giving such people confidence to buy properties.9
9.The Department told us that the scheme had also helped many people who were not first-time buyers, as well as some people with high household incomes. Around one-fifth of those who have used the scheme were not first-time buyers. The scheme has not been targeted by area or location. The Department and Homes England explained that the scheme was deliberately designed to be accessible and open, to turn potential demand into realisable demand for new-build properties, wherever, and for whoever, such demand existed. They asserted that to achieve this, the scheme was not targeted or means-tested.10
10.From March 2021, the Department will introduce a new version of the scheme that will be restricted to first-time buyers and will include lower regional price caps outside of London. The Department told us that its intention was that the changes will better focus the scheme on those who most need financial help.11 It told us that changing the scheme to make it more targeted will reduce the number of purchases through the scheme by around a fifth, although it recognised that this did not take into account all potential responses by developers, for example a move to building more smaller properties and flats.12 We asked the Department about concerns that the regional price caps will mean that the scheme will not work well in some areas within the regions. The Department committed to monitoring the situation, but told us that it did not have any plans to change the regional caps as it believed that in the vast majority of the country there were new properties available at a price below the relevant regional cap.13 The Home Builders Federation told us that changes to the scheme could reduce the supply of new-build houses as developers may build more flats. We therefore asked the Department what assessment it had made of the likely impact of the changes to the scheme from 2021. The Department did not provide us with details of its assessment of the impact of changes to the scheme on the housing market as a whole, but asserted that its response would form part of the forthcoming Spending Review.14
Extending and winding down the scheme
11.Help to Buy was designed as a short-term solution to address a fall in property sales caused by the financial crash of 2008 and the response by the regulatory authorities to tighten the rules on mortgage availability. The fall in sales led to a sharp drop in the number of new homes built, from a peak of 160,000 in 2007 to 65,000 in 2009.15 We heard from Professor Whitehead that by 2017 the market was stabilising and she questioned whether the additional £10 billion of funding for the scheme announced in 2017 had been as necessary. She told us that, at that point, developers’ and buyers’ confidence had increased, leading to greater demand for, and supply of, new-build properties.16 The Department commissioned two independent evaluations of the scheme, the first covering the period April 2013 to January 2015, and the second covering the period June 2015 to March 2017. We heard from the housing sector representatives that further evaluation to examine the value the scheme has brought to the housing market since March 2017 would be beneficial, although the Department currently had no plans to conduct another evaluation.17
12.The top five developers selling properties with the scheme sold between 36% and 48% of their properties through the scheme in 2018. Professor Whitehead told us that the new-build housing market was now dependent on Help to Buy.18 The Department acknowledged that the scheme was no longer as needed as it was in 2013 now that more high loan-to-value mortgages were available. It told us that it did not want to distort the market too much by leaving the scheme in place for too long.19 The National Audit Office found that the planned changes to the new scheme from 2021 will reduce its reach and begin to wean developers off the scheme. The Department told us that by giving the housing market several years to adjust to the withdrawal of the scheme, it expected developers and lenders to put in place new products to support people who had access only to smaller deposits so that they were able to buy their own homes.20
13.We asked the Department about the opportunities to achieve better value for money out of the scheme by introducing obligations and requirements for developers that it could not introduce in other circumstances. The Department confirmed that it will ban the sale of houses as leasehold through the new scheme from April 2021. It told us that it intended to use the scheme to enforce building quality standards, and that it will require any developer benefiting from the scheme in future to be a member of the proposed New Homes Ombudsman, which it was consulting upon.21 We examined the planning and housing market in June 2019 and found that some local communities were not getting the necessary infrastructure to support new housing developments because local authorities had not been able to secure the required contributions from developers. We also found that developers were renegotiating agreements to provide less affordable housing within developments than originally agreed with local authorities. We asked the Department whether it was able to allow developers to participate in the scheme only if they paid for the necessary infrastructure. We were disappointed to hear from the Department that it did not intend to use the Help to Buy scheme in this way, despite acknowledging that ensuring developers fund and build the necessary infrastructure was one of the biggest challenges it faces. The Department told us that it had introduced the housing infrastructure fund, worth £5.5 billion, and that this would help release sites with the infrastructure required for new housing developments.22
1 C&AG’s Report, Help to Buy: Equity Loan scheme – progress review, Session 2017–19, HC 2216, 13 June 2019
2 Q 38; C&AG’s Report, paras 2, 3, 1.2
3 Q 41; C&AG’s Report, paras 3, 4, 1.5
4 Qq 1, 40, 47, 89
5 Qq 1, 5, 53, 90, 96, 116, 124, 126
6 Qq 1, 3, 41, 50, 52, 58; C&AG’s Report, paras 2 and 8
7 Qq 47, 88–93; C&AG’s Report, para 17
8 C&AG’s Report, paras 8, 2.5
9 Qq 2, 40–41
10 Qq 8, 42, 45–46, 96; C&AG’s Report, para 4.6
11 Qq 41, 98–99
12 Qq 7, 55, 104
13 Qq 107–115
14 Qq 55–56
15 Qq 3, 72; C&AG’s Report, para 1.2
16 Qq 1, 3, 5, 42, 45, 47, 50; C&AG’s Report, Figure 1
17 Qq 27, 29; C&AG’s Report, paras 2.4–2.5
18 Q 3; C&AG’s Report, para 2.21
19 Qq 54, 59, 121
20 Qq 51, 116–118, 124, C&AG’s Report, para 27
21 Qq 86–87, 95–96
22 Qq 86, 88; Committee of Public Accounts, Planning and the broken housing market, One Hundred and Third Report of Session 2017–19, HC 1744, 26 June 2019
Published: 17 September 2019